Negative forecasts remain for 2012, but predictions will likely be unfulfilled, analyst says

By Sheri Kasprzak

New York, Jan. 12 - Municipals ended Thursday firmer yet again even as Treasuries faltered, market insiders reported.

Yields were lower by 2 to 3 basis points across the yield curve, said one trader reached during the session.

Supply tapered slightly, the trader said, but demand continues to drive the market, and substantial secondary market action was seen during the day.

"Secondary is very strong, demand is really strong, but there wasn't as much supply as there was earlier in the week," the trader said.

Despite the fact that some negative forecasts exist for the municipals market in 2012, those predictions will more than likely not come to pass into next year, said municipal credit analyst Tom Kozlik with Janney Montgomery Scott LLC.

Worries over massive muni market defaults and bankruptcies were unrealized in 2011, Kozlik pointed out. In fact, munis remain a fairly safe asset class and can be used as a good way for investors to realize dependable income, Kozlik said.

Janney cautious on some sectors

"Our credit outlook for the municipal market is mostly stable; however, we do have a cautious outlook on the local government, airport, health care, higher ed and tobacco sectors," Kozlik wrote in a report released Thursday.

Issuers, Kozlik said, have many levers available to them, which has allowed them to avoid distressed situations.

"There has been a significant amount of policy change recently, especially where state budgets are concerned," Kozlik wrote.

North Carolina brings Garvees

In primary action Thursday, the State of North Carolina came to market with $179.54 million of series 2012 grant anticipation vehicle revenue bonds, said a pricing sheet. The offering follows a $156 million sale of Garvees conducted in December.

The structures of the two deals were very different, said Julia Vail, spokeswoman for the state treasurer's office.

The Garvees sold in December were term bonds, and the bonds sold Thursday have serial maturities. The two offerings were orchestrated at different times, Vail said.

The bonds are due 2013 to 2019 with 2% to 5% coupons.

The bonds (Aa2/AA/AA-) were sold through Bank of America Merrill Lynch.

Proceeds will be used to widen, replace and relocate a series of highways and interstates within the state.

The bonds sold in December are due March 1, 2023. They have a split maturity with a 2% coupon and a 4% coupon. Both priced to yield 2.1%.

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