Municipals end week little changed; Puerto Rico Electric Power Authority bonds trade lower

By Sheri Kasprzak

New York, Aug. 9 - Municipals were mostly unchanged in light trading action Friday, receiving little direction from Treasuries and stagnating ahead of a quieter new-issue calendar for the coming week.

"Trading is light, Treasuries aren't moving a heck of a lot, and it's a pretty typical summer Friday," a trader said.

"We're also looking at a slower week next week. Supply is tapering somewhat."

Bonds priced Thursday by the Puerto Rico Electric Power Authority were seen trading at lower yields, said a market source.

Detroit to inject volatility

Looking to bankruptcy news, the City of Detroit's July bankruptcy filing will likely continue to cause volatility, said Alan Schankel, managing director with Janney Montgomery Scott LLC.

"Headline risk of Detroit news (as well as developments in Stockton, San Bernardino and Jefferson County) has and will continue to inject volatility into the municipal market, but contagion beyond a few unique situations is unlikely," Schankel wrote Friday.

"Investors seeking tax-free income can benefit from bouts of volatility by investing in the available variety of strong general obligation and revenue issues."

Issues sidelined

The city's bankruptcy is impacting other Michigan issuers, with a few offerings already placed on the back burner due to reported investor concerns, market sources reported Friday.

Genesee County, Mich., and Saginaw County, Mich., both have postponed their planned deals. Genesee County had been on the calendar with a $54.18 million offering of series 2013 water supply system revenue bonds (A2/A+/) through J.P. Morgan Securities LLC.

The proceeds from that sale, when it is rescheduled, will be used to acquire a piece of property adjacent to Lake Huron in Sanilac County, to construct a raw water intake facility and to refund the county's series 2003 and 2003B G.O. bonds.

Similarly, Saginaw County has had a $60.55 million offering of series 2013 G.O. limited tax pension obligation bonds (Aa3) on the calendar.

Those bonds will be offered through Fifth Third Securities Inc., and those proceeds will be used to fund unfunded pension liabilities for state employees.

California buys green bonds

Elsewhere during the session, the State of California completed a deal to purchase $100 million of World Bank green bonds, said a statement from Tom Dresslar, spokesman for the California State Treasurer's Office.

The state will receive a 0.39% yield on the bonds, Dresslar reported. The bonds are due in August 2015. Comparatively, the two-year Treasury note on Friday was at about 0.30%.

Proceeds will be used under the World Bank program to finance renewable energy and other, non-nuclear projects around the globe to fight climate change.

The bonds were purchased by the state's Pooled Money Investment Account. The account portfolio totaled $55 billion at the end of July, Dresslar noted. This is the third time the state has purchased World Bank green bonds. In April 2009, the state bought $300 million, becoming the first U.S. buyer of the bonds. In December 2011, the state purchased $400 million.

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