Municipal yields close softer to unchanged; $8.5 billion of new issues expected in week ahead

By Sheri Kasprzak

New York, May 18 - Municipals faced a slow session marked by little interest in either the secondary or primary segments of the market, said traders reached during the day.

"It's been extremely quiet, maybe even more so than usual for a Friday," one trader said.

"Retail is not interested in the low yields, and it's just a quiet session overall."

The week ahead will likely bring $8.5 billion of new issues and will be led by an $800 million offering from the City of New York, said Alan Schankel, managing director with Janney Montgomery Scott LLC. The activity will make it the busiest week so far this year, Schankel noted.

Munis underperform Treasuries

Although yields were somewhat improved on Thursday as Treasuries firmed, the slight drop in yields on the long end couldn't compete with Treasuries, Schankel said.

"Munis were stronger on Thursday, recovering some ground lost Wednesday, but they failed to keep up with roaring Treasuries," Schankel said.

"On the long end, the 30-year AAA muni benchmark yield fell 2 basis points 3.09%, but it was hardly a match for the like maturity Treasury, which finished 11 basis points lower. Muni-to-Treasury ratios rose further, reaching 105% in 10 years, a high point for the year, and topped 110% in 30 years."

New York City deal ahead

The major offering for the coming week is an $800 million sale of series 2012H-J general obligation bonds from the City of New York.

The bonds will be sold through lead manager Bank of America Merrill Lynch and are due 2012 to 2032.

Proceeds will be used to redeem existing G.O. bonds prior to maturity.

New Jersey Turnpike to price

Looking ahead, the New Jersey Turnpike Authority could be coming to market next week with $142 million of revenue bonds, said Schankel.

Moody's Investors Service on Friday revised its outlook on the turnpike's revenue bonds to stable from negative, said Schankel.

"With a $142 million issue scheduled for next week, the turnpike's debt service coverage levels have improved, aided by rate increases, aggressive operating expenditure cuts and stable traffic," Schankel said in a report released Friday.

"Moody's notes inelastic demand after significant toll hikes, a reflection of the lack of competitive alternatives to this critical north-south corridor system, which includes both the turnpike and the Garden State Parkway. One significant challenge facing the system is annual transfers from the Turnpike Authority to the state's transportation trust fund. These cash outflows limit the authority's ability to build liquidity."

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