Municipals close touch softer 10 years and out; markets ponder how to deal with sequester

By Sheri Kasprzak

New York, March 4 - Municipal yields were off a touch on Monday, and trading action remained fairly light, even among newly priced larger offerings out of New York and the University of California, market sources reported.

"Things are pretty flat inside of 10 years, but longer maturities are softer by a basis point or two," said one trader reached in the afternoon.

Muni yields followed Treasuries, which hit a snag during the session.

Meanwhile, the financial markets were working out how to deal with the Congressional sequester, said Tom Kozlik, municipal credit analyst with Janney Montgomery Scott LLC.

"For months, many thought that the 2013 sequester ... would have been avoided as a result of some type of political bargain," Kozlik wrote Monday.

"An agreement, however, never came, but that is not much of a surprise as lawmakers were not even close to an agreement. Now, the financial markets have to figure out how to fully digest the spending cuts that will commence as a result of the 2013 sequester."

Although the attention has been on events leading up to the sequester, that should shift to the next hurdle, Kozlik said, the March 27 continuing resolution expiration.

Connecticut deal set

Looking to the week's primary action, the State of Connecticut is prepared to hit the market with $400 million of general obligation bonds in two tranches.

The offering includes $170 million of series 2013A Sifma index bonds and $230 million of series 2013B fixed-rate bonds.

Citigroup Global Markets Inc. leads the syndicate selling the debt.

Proceeds will finance capital needs for the state.

Lower Colorado bonds ahead

Coming up on Tuesday, the Lower Colorado River Authority of Texas is scheduled to bring $307.97 million of series 2013 transmission contract refunding revenue bonds (A2/A/A+) competitively.

The bonds are due 2014 to 2043.

Proceeds will refund the authority's $320 million of transmission contract revenue notes.

Fitch changes outlook for California to positive

Moving to ratings news, Fitch Ratings said Monday that it has revised its outlook on California G.O. debt to positive.

The agency also assigned an A- to the state's planned $2.4 billion sale of G.O. bonds. The deal is scheduled for March 14.

"The positive outlook reflects the fiscal management improvements instituted by California in recent years, which when combined with two successive years of structural budget process have enabled the state to materially reduce budgetary borrowing," analysts Doug Offerman, Karen Krop and Laura Porter wrote.

"Eventual rating action would be linked to the state's demonstrated willingness to restrain spending growth and progress reducing budgetary obligations."

Fitch rates California's G.O. debt A-.

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