Municipals close out week firmer along with Treasuries; Baltimore County tops $5 billion slate

By Sheri Kasprzak

New York, Jan. 24 - Municipals closed out a largely positive week with more firmness, market insiders reported. Secondary market action picked up, perhaps delayed from the snowstorm earlier in the week, and a Treasuries rally also helped push yields lower.

Municipal yields were lower by 3 basis points to 5 bps on the day, said one trader.

"I suspect that a lot of the trading that didn't happen earlier in the week [because of the snowstorm] was happening today," he said.

"Add to that the light primary calendar, and we have nearly no pressure. Yields this afternoon are down 3 [bps] to 5 [bps]."

Over in the Treasuries market, yields fell as investors took their money out of risky emerging markets and invested in safer securities like Treasuries. The 10-year note yield fell by 4.5 bps to close at 2.728%, and the 30-year bond yield fell by 4 bps to 3.644%. The five-year note yield fell by 3.5 bps to 1.556%.

Baltimore deal ahead

Looking to the coming week, Baltimore County, Md., is set to hit the market on Thursday with $428.77 million of series 2014 general obligation bonds and G.O. bond anticipation notes.

The deal includes $60 million series 2014 metropolitan district bonds, $140 million series 2014 Baltimore County consolidated public improvement bonds, $28.77 million series 2014 Baltimore County metropolitan district bonds and $200 million of series 2014 G.O. BANs.

The bonds (//AAA) and BANs (//F1+) will be sold competitively.

Proceeds will be used to finance public improvement projects and to refund existing debt.

Muni bond market 'stronger'

Looking to other municipals data, muni yields have come down at a slightly faster pace than Treasuries, helping to push up bond prices, said J.R. Rieger, vice president of fixed-income indexes with S&P Dow Jones Indices.

"Cash inflows for bond funds and manageable new issue supply have helped foster a stronger muni bond market," said a report released by Rieger Friday.

The S&P National AMT-Free Municipal Bond index, which tracks investment-grade bonds, started 2014 with a positive total return of 2.07%. The average yield of bonds has fallen by 32 bps since the end of 2013, outpacing the drop in yield of the 10-year Treasury bond.

Meanwhile, the rotation from long bonds to shorter ones seems to be helping the belly of the curve, Rieger noted.

Five-year bonds as tracked by the S&P AMT-Free Municipal Series 2019 index have been yields drop by 30 bps to 1.66%. The S&P AMT-Free Municipal Series 2023 index has seen yields decline by 29 bps to 2.95%. Out longer, 20-year bonds as tracked in the S&P Municipal 20 Year High Grade Rate index saw yields drop by 40 bps to 4.15%.

Puerto Rico rallies

Even though Puerto Rico pulled the muni market down in 2013, with the S&P Municipal Bond Puerto Rico index falling by more than 20% during the year, the index has seen a rally of 3.28% in January as the average yield has improved to 7.22% from 7.44% at the end of 2013.

"Possible new bond issuance from Puerto Rico will test the depth of the market's appetite for these bonds in coming weeks," Rieger said.

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