Municipals firm 15 years and in as new deals well-received; sequester could impact BABs

By Sheri Kasprzak

New York, Feb. 27 - Yields on shorter muni bonds were stronger on Wednesday, despite some Treasury weakness, market insiders reported. Most of the day's new issues were well-received by investors, said traders.

"Even though Treasuries are off, we're seeing some firmness, particularly 15 years and in," said one trader.

"Out long, there's not a lot of interest, and investors do seem to be venturing out a bit longer than they were earlier in the week, but they're not going much past 15 years."

Yields were seen mostly unchanged between 20 and 30 years. Yields inside of 15 years were better by 3 to 5 bps.

Houston college bonds price

In primary action on Wednesday, the Houston Community College System of Texas came to market with $398,775,000 of series 2013 limited tax general obligation bonds, said a pricing sheet.

The bonds (Aa1/AA+/) were sold through J.P. Morgan Securities LLC.

The bonds are due 2015 to 2038 with a term bond due in 2043. The serial coupons rage from 3% to 5%. The 2043 bonds have a split maturity with a 4% coupon priced at 103.305 and a 5% coupon priced at 114.534.

Proceeds will be used to construct, acquire, equip and furnish the system's school properties and acquire property.

Sequester may impact BABs

Meanwhile, many market participants expect a congressional sequester to commence on March 1.

"We expect the sequester to commence on March 1," said Tom Kozlik, municipal credit analyst with Janney Montgomery Scott LLC.

"This will likely have a somewhat meaningful short-term economic drag on U.S. GDP, dropping the Janney FIS forecast by 0.6% to 0.8%, so our growth expectation is only 1.2% to 1.5% for 2013, well below historical growth levels of 3% to 4%."

Even so, the sequester could have a limited impact on the muni sector, particularly to those areas and issuers that have been reliant upon federal spending.

"BAB and Recovery Act bond issuers will lose small portions of their subsidy payments due to the sequester," Kozlik said.

"Issuers are still on the hook for 100% of bond principal and interest, however. This violation of trust greatly reduces the chances of future issuer support for reincarnations of the program, especially at lower subsidy levels. BAB extraordinary redemption provisions triggered as a result of the sequester will likely not be acted on now by issuers in large numbers, but could under certain market conditions."

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