Long bonds struggle, shorter yields hold steady; New York Thruway readies $350 million deal

By Sheri Kasprzak

New York, Sept. 2 - The market rounded out the week with some weakness seen on the long end of the curve. Meanwhile, shorter yields were flat as the market prepared to go on break for the Labor Day weekend.

Twenty-year yields were seen up 5 basis points, and 15-year yields were up nearly 3 bps. Thirty-year bonds were seen down by about a basis point.

Shorter bonds were unchanged as the market struggled with low primary action and investor absence from the secondary market.

Meanwhile, J.R. Rieger, vice president of fixed income indexes at Standard & Poor's, wrote Friday about the low impact of last weekend's hurricane.

"Hurricane Irene rocked the East Coast but not the municipal bond market," Rieger wrote in a report.

"The municipal bond market has seen low new issuance, sleepy summer trading in the secondary market and the uncertainty that Hurricane Irene brought to bear."

S&P index yield drops

Rieger wrote that the S&P National AMT-Free Municipal Bond index saw its weighted average yield drop 13 bps for the month of August, giving up 4 bps last week as the hurricane brought some uncertainty to the market.

"The index has seen a positive total return for the third quarter so far over 2.7% and a year-to-date return of 7.67%," wrote Rieger.

Meanwhile, Rieger noted that the belly of the curve has benefitted from investors going down the maturity curve and a flight to quality seen in the fixed-income markets.

"Investment-grade tax-exempt bonds maturing in 2016 are a good example," Rieger wrote.

These five-year bonds yield "a tax-exempt 1.28%, a 27 bps improvement over last month, driving a total return of over 6.3% for the year. Ten-year municipal bonds have seen a 37 bps move this month, recording a nearly 3% return for August and over 9.7% return for the year."

California to offer RANs

In new-issue news, the State of California is gearing up to bring $5.4 billion of revenue anticipation notes to market in a couple of weeks, and Tom Dresslar, spokesman for state treasurer Bill Lockyer, said Friday that Standard & Poor's gave the deal its highest rating of SP-1+.

Moody's rated the notes MIG 1, and Fitch assigned an F1 to the deal Friday.

"These top ratings reflect the strength of the FY 2011/12 budget," Lockyer said in a statement.

"Particularly important from an investor standpoint are the spending cuts that will be triggered automatically if revenues fall short of projections."

The notes are slated to price for institutional investors on Sept. 15 after a two-day retail order period from Sept. 13 to Sept. 14.

The notes will be sold on a negotiated basis.

Proceeds will be used to pay off a $5.4 billion bridge loan the state received July 26 from eight banks.

New York Thruway deal set

Heading up next week's primary action is a $350 million deal from the New York State Thruway Authority. The authority plans to offer series 2011A state personal income tax revenue bonds on Tuesday through Siebert Brandford Shank & Co. LLC.

The bonds are due 2012 to 2026, and proceeds will be used to make grants to reimburse municipalities and other project sponsors for highway, bridge and multi-modal projects.

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