Municipals close unchanged to weaker; Maryland arranges $727.92 million sale of G.O. bonds

By Sheri Kasprzak

New York, July 27 - After a solid week of falling yields, municipals were unchanged to slightly softer on Friday as supply tapered and the market turned its attention to the coming week's new offerings, traders reported.

"I'd say we're unchanged, but there's a touch of weakness out there right in the middle," a trader said.

"That's the most volatile segment. I don't see anything in particular that's pushing us down. I'd say we're just wrapping up the week and getting ready for the next."

Meanwhile, inflows to municipal bond funds remain positive, said J.R. Rieger, vice president of fixed-income indexes with Standard & Poor's.

"The troubles of several municipalities around the nation have remained high-profile, but that has not shaken the demand for municipal bonds as municipal bond fund inflows remain positive," Rieger wrote Friday.

"Tracking the broad investment-grade segment of the market, the S&P National AMT-Free Municipal Bond index has returned 1.82% for the month to date and over 5.6% year to date. Higher yielding municipal bonds tracked by the S&P Municipal High-Yield index have returned 2.13% month to date and 12.27% year to date."

Munis not as volatile

Although U.S. municipal bonds aren't immune to volatility, the market has not seen the kind of volatility seen in the equities and commodities markets, said Rieger.

"Yields have moved down, reflecting the demand that has been present for most of 2012," Rieger said.

"Yields on tax-exempt investment-grade municipal bonds tracked by the S&P National AMT-Free Municipal Bond index have moved down by 15 bps since midyear, and yields on high-yield munis dropped by 18 bps as tracked by the S&P Municipal High-Yield index, improving by 106 bps since year-end."

Cities rethink bankruptcy

In bankruptcy news, two California cities may not be as quick to file for Chapter 9 bankruptcy protection as initially thought, said Tom Kozlik, municipal credit analyst with Janney Montgomery Scott LLC.

San Bernardino plans to defer $3.4 million of pension bonds and $2.2 million of retiree health-care payments before filing for bankruptcy protection, Kozlik said.

Meanwhile, Compton, which reportedly has a $40 million general fund deficit, will try to work things out without filing, Kozlik noted.

Maryland prepares G.O. deal

Leading the upcoming week's new issues, the State of Maryland plans to price $727.92 million of second series 2012 general obligation state and local facilities loan bonds.

The five-tranche deal will price Wednesday through senior manager Citigroup Global Markets Inc.

The offering includes $75 million of second series A bonds, $430 million of second series B bonds, $20 million of second series C bonds, $15.32 million of second series D bonds and $187.6 million of second series E bonds.

Proceeds from the sale will be used for public purposes, including to acquire and construct state facilities, for capital grants to local governments, to match loans and grants to local governments, nonprofit institutions and other entities, for capital grants to local education agencies for public school renovations and to purchase federal securities for the advance refunding of outstanding G.O. bonds.

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