Municipal yields finish weaker; California governor unveils budget with $12.5 billion of cuts

By Sheri Kasprzak

New York, Jan. 10 - Municipals closed out the day weaker amid light to moderate trading action, said market insiders.

"Out long, we're probably off 3 or so basis points," said one trader reached during the afternoon.

"Further in, maybe 1 or 2 basis points weaker. We've seen some interest [in secondary]. I'd say moderate trading today."

Meanwhile, in California, Gov. Jerry Brown unveiled a budget that would make significant cuts to help the state close its massive $25.4 billion budget deficit over 18 months. The plan includes $12.5 billion of cuts to health care, state employee pay, welfare and other state programs.

The move is in response to the state's inability to raise money during the recession as unemployment has obliterated income taxes.

"These cuts will be painful, requiring sacrifice from every sector of the state, but we have no choice," Brown said in a statement.

State Treasurer Bill Lockyer said in a statement that he agrees with the governor's proposal and called it the "best cure."

"The governor's proposal is realistic and provocative," Lockyer said in the statement.

"The plan acknowledges that a balanced remedy of spending reductions and revenues is the best cure, that we would do more harm to our economy and families if we set fire to government or treated taxpayers like ATMs. And it provokes a necessary discussion about how much responsibility and accountability for public services should reside in our communities."

King County brings bonds

Moving to primary action Monday, King County in Washington brought $175 million of series 2011 sewer revenue bonds, said a pricing sheet.

The bonds (Aa2/AA+/) were sold competitively with Citigroup Global Markets Inc. winning the bid. Seattle-Northwest Securities Corp. was the financial adviser.

The bonds are due 2014 to 2032 with term bonds due 2034, 2037 and 2041. The serial coupons range from 5% to 5.25%. The 2034 bonds have a 5% coupon priced at 98. The 2037 bonds have a 5.125% coupon to yield 5.2%, and the 2041 bonds have a 5.125% coupon to yield 5.26%.

Proceeds will be used to finance improvements to the county's sewer system.

The county seat is Seattle.

N.J. Educational sale ahead

Looking to the week's major offerings, the New Jersey Educational Development Authority and the New York Transitional Finance Authority will lead primary action. Both offerings are slated for Wednesday.

The New Jersey Educational Development Authority will price $1.645 billion of series 2011 school facility construction bonds through Bank of America Merrill Lynch.

The offering is comprised of $1.2 billion of series 2011 tax-exempt bonds and $445 million of series 2011 taxable bonds.

Proceeds from the bonds (Aa3) will be used to refund variable-rate demand bonds to either fixed-rate bonds or floating-rate notes as well as to terminate swap agreements.

The New York City Transitional Finance Authority is set to price $875 million of series 2011C future tax secured subordinated bonds through Barclays Capital Inc.

Those bonds are due 2012 to 2031 with term bonds, and the proceeds will be used to finance general capital expenditures for the city.

DePaul sale set

Leading Tuesday's primary activity is a $115 million sale of series 2011A revenue bonds from the Illinois Finance Authority for Chicago's DePaul University.

The bonds (A3/A-/A) will be sold through Goldman Sachs & Co.

Proceeds will finance capital projects at the university.

Also on the horizon, the Arizona Transportation Board is set to sell $170 million of series 2011 tax-exempt grant anticipation notes (Aa2/AA/AA) during the week through Bank of America Merrill Lynch.

The proceeds from that sale will be used to finance highway improvement projects throughout the state.

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