Municipals rally along with Treasuries amid buying; Puerto Rico 2035 G.O.s trade at 9.08%

By Sheri Kasprzak

New York, May 28 - Municipals rallied along with Treasuries amid month-end buying and a couple of successful Treasury auctions, market sources said.

Although secondary action picked up somewhat on Wednesday, trading remained relatively light, said a trader. By the end of the session, intermediate to long bond yields fell by 5 to 6 basis points, and shorter maturities were seen better by about 3 bps.

Looking to Treasuries, the 10-year note yield, which had fallen 21 bps during the month of April, fell by 7.5 bps Wednesday at 2.443%. The 30-year bond yield also dropped by 7.5 bps at 3.293%, and the five-year note yield fell by 4.5 bps at 1.481%.

Puerto Rico GOs at 9.08%

Moving to secondary action, Puerto Rico's 8% 2035s from the commonwealth's sale of G.O.s in March were seen trading at an average yield of 9.08% on Tuesday, market sources reported. The 2035s (Ba2/BB+/BB) had been trading around 9%.

Meanwhile, Puerto Rico Electric Power Authority's 6.75% 2036s (Ba2/BBB/BB+) from an August 2013 issue were seen trading at 10.38% Tuesday, just below the 10.43% average for the month.

"Narrow liquidity has been an issue for PREPA, with the utility recently forced to transfer money from its capital account to pay for oil, since credit lines used to finance oil purchases are at capacity," said Alan Schankel, managing director with Janney Montgomery Scott LLC.

"PREPA is negotiating renewal of two credit lines totaling $750 million, $550 million of which comes due in August."

Bryan's bonds, certificates

Although most of the week's offerings are slated to price Thursday, recent new deals include an offering from the City of Bryan, Texas, which hit the market with $51.86 million of series 2014 general obligation refunding bonds and combination tax and revenue certificates of obligation.

The deal included $42,615,000 of series 2014 certificates and $9,245,000 of series 2014 G.O. refunding bonds, said a pricing sheet.

The certificates are due 2015 to 2037 with a term bond due in 2039. The serial coupons range from 2% to 5% with 0.3% to 3.85% yields. The 2039 bonds have a 3.8% coupon priced at 98.403 to yield 3.9%.

The G.O.s are due 2014 to 2031 with coupons from 2% to 3.25% and yields from 0.25% to 3.4%.

The bonds (/AA/) were sold competitively. The issuer did not immediately return calls for the winning bidder.

Proceeds will be used to refund existing G.O. debt and finance capital improvements.

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