Municipals get boost again from Treasuries; state and municipal revenues are down, Fitch says

By Sheri Kasprzak

New York, Sept. 13 - Municipals had a firmer tone again on Friday thanks to a stronger Treasuries market, insiders reported.

Trading action was relatively subdued to close out the week, even though secondary action was stronger on Thursday.

"I'd call it a typical Friday," a trader said.

"It's quiet. We're waiting for next week's supply."

Meanwhile, Treasuries got a boost on Friday as the market waits for the Federal Open Market Committee's September meeting on Wednesday.

Revenues down five years later

Moving to broader market trends, Fitch Ratings released a report Friday that revealed that revenues for most states and municipalities are down five years after the Great Recession.

"Many states expect to see lower tax revenue growth in the future than they did in 2013, the impact of federal health-care reform on state budgets is uncertain, and a few states are pressured by increased funding demands from their state employee pension plans," the report said.

"Pressures for localities are heavier on labor costs. Before the recession, state and local governments both benefited from a period of sustained strong tax revenues and overall economic growth. The recession struck states more immediately as their revenue structures depend heavily on income and sales taxes. The impact on local governments was less dramatic since they usually rely on a moderate to large extent on property taxes."

"...Today, both states and localities are growing moderately. Generally, revenues are recovering along with the tepid economic recovery."

Massachusetts note deal ahead

Looking to the coming week's primary action, the Commonwealth of Massachusetts will offer up $800 million of series 2013 general obligation revenue anticipation notes on Wednesday.

The deal includes $200 million of series 2013A notes due April 24, 2014, $300 million of series 2013B notes due May 29, 2014 and $300 million of series 2013C notes due June 26, 2014.

Proceeds from the competitive offering will be used to finance certain capital requirements for the commonwealth ahead of the collection of revenues during the 2014 fiscal year.

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