Municipals post slight losses; $11 billion of new deals ahead led by California G.O. bonds

By Sheri Kasprzak

New York, March 7 - Municipal yields were a touch off on Thursday after sustaining significant losses Wednesday, market sources reported.

Secondary action was decent, but some major offerings priced during the week were seen cheaper in trading, said traders. Two deals seen particularly cheaper were those from the Lower Colorado River Authority of Texas and the State of Maryland's general obligation bonds.

Meanwhile, demand for munis remains positive.

"From an overall market view, demand remains positive, but at $579 million in the week ending Feb. 27, inflows to municipal bond mutual funds are slowing from the frantic pace of January with February's average week at $647 million, compared to $1.4 billion on average in January," said Alan Schankel, managing director with Janney Montgomery Scott LLC.

"Proceeds from the maturing and pre-refunded bonds available for reinvestment, at about $11 billion, will be the lowest of the year in April, with the $13 billion expected in March the second-slowest month of 2013."

Supply led by California

Next week will bring a robust $11 billion of new issues, led by a $2.4 billion deal from the State of California. The Golden State is slated to price series 2013 G.O. bonds in three tranches.

The sale includes $1.09 billion of series 2013A various purpose G.O. bonds, $1 billion of series 2013B various purpose G.O. refunding bonds and $310 million of series 2013C taxable various purpose G.O. bonds.

The bonds (A1/A/A-) will be sold through J.P. Morgan Securities LLC and Goldman Sachs & Co.

Proceeds will fund capital projects. Pricing is set for Thursday.

Maryland G.O. bonds cheapen

In other news, the State of Maryland's $665,135,000 of series 2013 G.O. bonds priced on Wednesday were seen trading cheaper Thursday, market sources reported.

The deal included $500 million of series 2013 first series A tax-exempt G.O. bonds and $165,135,000 of series 2013 first series B tax-exempt G.O. refunding bonds

The 2013A bonds are due 2016 to 2028 with 3% to 5% coupons.

The 2013B bonds are due 2017 to 2021 with 4.5% coupons.

The bonds (Aaa/AAA/AAA) were sold competitively. Citigroup Global Markets Inc. won the 2013A bonds at a 2.33% true interest cost, and JPMorgan won the 2013B bonds at a 1.087% TIC.

"Given Maryland's economic exposure to sequester cuts, with its significant levels of federal employment and procurement programs, the sale was watched as a gauge of market concern over the impact of spending reductions on municipal issuers," Schankel said.

"Yields through five-year maturities (2018 at 5% to yield 0.76%) came in on top of the AAA MMD index, but longer maturity pricing included some concession, with the 10-year yield of 1.87% 4 bps above MMD. On balance, the sale was well received with spreads to the benchmarks in line with past sales, indicating that the state's underlying strong credit metrics alleviated concern over the impact of federal spending reductions."

Proceeds will be used to finance the acquisition and construction of state facilities, to make capital grants to local governments for public schools, community colleges and jail and correctional facilities and to make matching fund loans and grants to local governments, nonprofit institutions and other entities for hospitals, cultural projects and other projects, as well as to refund existing G.O. debt.

CWU deal prices

Elsewhere in the primary market, Central Washington University of Washington state priced $53,415,000 of series 2013 system revenue refunding bonds, said a pricing sheet.

The bonds (A1) were sold competitively. JPMorgan won the bid at a 3.1306311% TIC, said Linda Schactler, a spokeswoman for the university.

The bonds are due 2015 to 2034 with 3.125% to 5% coupons.

Proceeds will be used to advance refund the university's series 2004 revenue bonds for debt service savings.

The offering will save the university $10.8 million over the next 22 years, according to a statement released by the university.

"The bonds were initially issued in 2004 to fund construction of the student union and recreation center and other campus projects," the statement said.

The initial bonds were issued under the university's A2 rating from Moody's, which was upgraded last week.

"The refinancing is now expected to save the university about $430,000 a year in interest for the next two years and $498,000 annually after that," the university's president, James L. Gaudino, said in the statement. "We were pleased to hear that we will save even more money than was initially projected."

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