Municipals rally continues, but trading slows; New York's Metro Transit sells $350 million

By Sheri Kasprzak

New York, Nov. 8 - Municipals were yet again firmer in line with Treasuries, but trading volume in the secondary market was lighter than Wednesday's levels, said market insiders.

"We seem to be creeping back into the pattern we had last week," said a trader reached in the late afternoon.

"I think the election really bolstered trading. There was a bit more demand. Today, trading kind of tapered off."

Municipal yields were most improved on the long end of the curve, said a trader, as Treasuries again improved following an auction.

Meanwhile, the rally has pushed the municipals-to-Treasury ratios to below 100%, said Alan Schankel, managing director with Janney Montgomery Scott LLC.

"Inflows to municipal mutual funds continued last week," Schankel said.

"Although the $385 million of new investment in the week ending Oct. 31 was positive, the magnitude was below the 2012 weekly average of $1.1 billion, likely reflecting the two-day hiatus experienced by much of the investment industry due to [Hurricane] Sandy."

MTA brings $350 million

In new-issue action, the Metropolitan Transportation Authority of New York sold $350 million of series 2012H transportation revenue bonds, according to a term sheet.

The bonds were sold through Siebert Brandford Shank & Co. LLC, Duncan-Williams Inc. and Rice Financial Products Co.

The bonds are due 2013 to 2034 with term bonds due in 2037 and 2042. The serial coupons range from 2% to 5%. The 2037 bonds have a 3.625% coupon priced at par, and the 2042 bonds have a 5% coupon priced at 113.922.

Proceeds will be used to finance transit and commuter projects for the authority.

Defaults not expected

Looking to Hurricane Sandy's impact on the municipal market, Moody's Investors Service announced Thursday that it does not expect any payment defaults on rated municipal bonds in the affected areas, even in light of $50 billion of economic loss in the Northeast, said Jay Abrams, chief municipal credit analyst with FMS Bonds, Inc.

"Most issuers can fall back on debt-service reserve funds, bond insurance and other sources if there are revenue disruptions in the aftermath of the storms," said Abrams Thursday.

"Moody's noted several hospitals that required evacuation during the storm have already returned to service. Transportation issuers, such as New York's Metropolitan Transportation Authority, are gradually returning to normal service as well, providing continuing flow of revenues. Debt-service coverage on transportation bonds has tended to be ample and will support a short-term decline, Moody's said."

Abrams said that in the coming weeks, Moody's intends to review credits rated Baa1 and below to monitor damage and financial resources available for repairs.

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