Munis close mixed; new offerings get solid reception; Fitch says California budget is positive

By Sheri Kasprzak

New York, Jan. 14 - Municipals were mixed on Tuesday, outperforming weaker Treasuries, market insiders said. For the most part, municipals were buoyed by the strong reception received by new offerings, said traders.

"The focus is on primary, and what's pricing is not only seeing good demand but also solid pricing levels," a trader said during the afternoon.

Yields 10 years and in were slightly weaker, but the rest of the market was mostly flat to slightly firmer. The market was decidedly better than Treasuries, which hit a sour note after better-than-expected retail sales data.

The 10-year Treasury note yield rose by 5 basis points to close at 2.875%, and the five-year note yield climbed by 6 bps to 1.65%. The 30-year bond yield climbed by 4 bps to 3.805%.

California budget 'prudent'

On Tuesday, Fitch Ratings said it believes Governor Jerry Brown's budget proposal for fiscal year 2015 sets out a "reasonable and prudent course to further strengthen California's financial condition as it continues to repair the remaining damage from two severe fiscal crises over the last decade."

"In Fitch's view, the governor's proposed budget is consistent with the last three adopted budgets, which also prioritized shoring up the state's finances, including through prudent control of spending and budgetary debt repayment," said the report from senior director Douglas Offerman.

The report noted that only three years ago, the state faced a $26.6 billion cumulative operating gap, equivalent to 15.3% of baseline fiscal 2011 and 2012 general fund revenues.

"Since then, gradual economic and revenue gains, the state's disciplined approach to limiting spending growth and voter approval in 2012 of temporary personal income and sales tax increases have enabled the state to move toward structural budget balance while repaying billions in past budgetary borrowing," the report said.

State still needs work

In August, Fitch upgraded the state's general obligation bond rate to A from A-.

Even so, the state has yet to fully recover from the effects of two fiscal crises in one decade, the report said.

"At the end of fiscal 2015, the state projects having $13.1 billion in unpaid budgetary borrowing, and multiple long-term fiscal challenges will still require the state's attention and resources, notably addressing the underfunding of teacher pension contributions. Nonetheless, Fitch considers the state's budget proposal to be another solid step toward fiscal recovery," the report said.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.