Munis stagnate as investors wait for debt ceiling word; week to bring $5 billion of new deals

By Sheri Kasprzak

New York, Aug. 1 - Municipals closed out a lazy Monday flat to firmer, said market insiders, as hesitant investors looked to Washington for word on the latest debt ceiling proposal that could keep the U.S. government from defaulting on its debt.

Intermediate yields were seen down 4 basis points to 5 bps, said one trader reached during the afternoon, but most of the yield curve was flat.

"They're sitting on their hands," the trader said of investors.

"Nothing's getting done. Everyone's waiting on the Washington situation to get clearer. Until then, there's some anxiety."

Meanwhile, Alan Schankel, managing director with Janney Montgomery Scott LLC, reported Monday that new issue volume for the week ahead should be around $5 billion, but he expects the pace to grow next week as offerings delayed by the debt ceiling uncertainty come to market.

M/T ratios up

Municipal-to-Treasury ratios jumped, Schankel wrote in a report Monday, with the 10-year ratio at 96%.

"Despite the relative yield stability, it's reported that larger-than-typical new issue balances remain," Schankel wrote.

On the ratings front, Moody's Investors Service put 177 Aaa-rated issuers on watch for a possible downgrade last week, generating questions from bondholders and the issuers themselves, said Schankel.

"Issuers were caught by surprise with the rating actions," Schankel wrote.

"The negative connotation of watch placement had little or nothing to do with their individual financial situations and more to do with the potential impact of decreases in federal spending. We suspect this will take time to play out since specific details of cuts in the initial federal fiscal agreement are not yet available, and the bigger spending reduction plan is not due until November."

Montgomery County bonds set

Heading up the week's issuance, Montgomery County in Maryland is slated to bring $579.41 million of series 2011 consolidated public improvement general obligation bonds on Wednesday.

The bonds (Aaa/AAA/AAA) will be sold competitively.

The offering includes $320 million of series 2011A bonds, which are due 2012 to 2031, and $259.41 million of series 2011B bonds, which are due 2012 to 2033.

Proceeds will be used to refinance all or a portion of the county's outstanding bond anticipation notes and to refund existing G.O. debt.

New York Transition plans sale

Also coming up on Wednesday, the New York City Transitional Finance Authority is expected to come to market with $300 million of series 2012A future tax secured subordinated bonds through J.P. Morgan Securities LLC.

The proceeds from the sale will be used to redeem existing bonds.

On Thursday, the Virginia College Building Authority will bring $274.895 million of series 2011A educational facilities revenue bonds in a competitive sale.

Those bonds are due 2013 to 2032.

Proceeds will finance capital projects and be used to acquire equipment for various higher educational facilities in Virginia.

Community Memorial deal ahead

After being postponed last week, the City of San Buenaventura, Calif., will once again attempt to price $345.9 million of series 2011 revenue bonds for Community Memorial Health System through Bank of America Merrill Lynch this week.

The bonds (Ba2/BB/) are due 2016 to 2021 with term bonds due in 2026, 2031 and 2041.

Proceeds will be used to upgrade, expand and modernize Community Memorial Health facilities, including installing seismic safety measures.

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