Municipals firm as Treasuries improve, supply dwindles; $335.82 million tobacco bonds price

By Sheri Kasprzak

New York, Oct. 2 - Municipals were improved on Wednesday as supply dried up for the week and Treasuries closed better, market sources said.

Yields were better by 2 basis points to 4 bps across the curve, with most of the improvement seen outside of 10 years.

Heading over to Treasuries, investors were fleeing to quality, helping push yields lower. The five-year note yield fell by 5 bps, the 10-year note yield shrank by 3.5 bps, and the 30-year bond yield fell by 1 bp.

Tobacco bonds price

Heading up the day's action, the Tobacco Settlement Authority of Washington State priced $335.82 million of series 2013 tobacco settlement revenue refunding bonds, said a pricing sheet. The deal was downsized from $344.39 million.

The bonds were sold through lead managers Barclays and Citigroup Global Markets Inc.

The bonds are due 2014 to 2033 with 4% to 5.25% coupons.

Proceeds will be used to current refund the authority's series 2002 tobacco settlement revenue bonds.

The offering comes after tobacco settlement municipal bonds had a good September. The S&P Municipal Bond Tobacco index recorded a positive 5.39% during the month, but had a negative 4.37% return for the quarter. Year-to-date, the index has seen a negative return of 7.66%.

S&P cuts Detroit G.O.s

Moving to ratings news, Standard & Poor's dropped the City of Detroit's unlimited and limited tax general obligation bond debt to D from C.

The move comes just days after Fitch Ratings cut the city's unlimited and limited tax G.O. debt to D from C as well, as the city announced its intention to default on interest payments on its limited and unlimited tax G.O.s.

In other news out of the city, the Water and Sewerage Department announced that it paid its outstanding state revolving fund loans on Sept. 24, according to Fitch.

"The SRF loans are not rated by Fitch, but are secured by a net revenue pledge of the department's individual water and sewer systems, with such pledge, in most cases, subordinate to each system's senior and second-lien revenue bonds that are rated respectively BBB+ and BBB, with a negative watch by Fitch," said a Fitch statement released Wednesday.

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