Municipals close flat amid light secondary; King County, Wash., brings $74 million of G.O. BANs

By Sheri Kasprzak

New York, Feb. 13 - Municipals kicked off the week on a flat note as already-light secondary action practically ground to a halt, said market sources.

"It is extremely quiet," said one trader.

"I'd call it flat overall. There might have been a bit of softness earlier, but it's flat."

Overall primary action for this week is expected to be about $5.8 billion, said Tom Kozlik, municipal credit analyst with Janney Montgomery Scott LLC. Kozlik noted that about $4.1 billion of volume from the week before was quickly absorbed by the demand-driven market.

"Demand, especially by retail buyers, remains strong," Kozlik said.

Municipal mutual fund flows remain positive, Kozlik said on Monday, with flows coming in at about $1.6 billion, up from $1.3 billion for the week of Jan. 25.

'Year of Fear' is just wrong

Kozlik also took issue on Monday morning with the Wall Street Journal's headline "Another Year of Fear for Municipal Bonds," which Kozlik said is more unnecessary fear-mongering.

It's not surprising Kozlik is concerned with headlines of this nature. When equity analyst Meredith Whitney predicted defaults to the tune of hundreds of billions of dollars in 2011, investors became extremely wary of municipals.

"While the article made some relevant points about supply, yields and the fact that a municipal meltdown is unlikely, the relevant points were mashed in between fear-mongering statements and printed below a headline that illustrates that some popular financial commentary remains behind the curve," Kozlik said.

"Although we expect rations actions to continue to lean toward the negative, we believe state and local government credit quality generally remains strong and defaults will be few and far between."

King County's $74 million

Leading the light primary activity Monday, King County in Washington sold $74,025,000 of series 2012 limited tax general obligation bond anticipation notes, said a pricing sheet.

The bonds (MIG 1/SP-1+/F1+) were sold competitively, with J.P. Morgan Securities LLC winning the bid at a net interest cost of 14 basis points, said Nigel Lewis, the county's debt manager.

The bonds are due Feb. 28, 2013 and have a 2.5% coupon priced at 102.371.

"For comparison, the last two times that the county issues similar BANs were in February and May of 2011, when the net interest costs of the winning bids were 40 and 28 basis points, respectively," Lewis said in an interview.

Proceeds will be used to provide interim financing for the county's capital improvement plan for solid waste facilities, transfer and waste management plan.

In May of 2011, the county sold $82,295,000 of BANs, which are due June 13, 2012 and bear interest at 3% priced at 102.727. In February of 2011, the county sold $40 million of BANs, which are due March 1, 2012 and bear interest at 2.75% priced at 102.385.

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