Municipals end somewhat weaker, outperform Treasuries; Fitch says Detroit pension plan 'weak'

By Sheri Kasprzak

New York, Jan. 27 - Municipals closed out the session Monday weaker, particularly at longer maturities, market sources reported.

"Trading is pretty light, and we're getting pushed down by Treasuries," said a trader late in the afternoon.

"The short end of the curve is relatively flat, but out long, we're seeing yields up 1 to 2 basis points."

Meanwhile, Treasuries took a hit despite the release of weaker new single-family housing sales. The 10-year note yield climbed by 2.5 basis points to close at 2.761% and the 30-year bond yield rose by 2.5 bps at 3.676%. The five-year note yield rose by 1.5 bps at 1.581%.

Detroit plan 'weak'

According to a Fitch report released Monday, Michigan Gov. Rick Snyder's proposal to contribute $350 million towards Detroit's unfunded pension liabilities demonstrates "continued weak support for bondholder security and repayment stemming from Detroit's bankruptcy."

The money Snyder is offering up is contingent upon labor unions agreeing to stop legal actions aimed at blocking Detroit's bankruptcy.

"In Fitch's opinion, action that suggests pensions' claim on limited resources should be given priority to that of bondholders could establish a troubling precedent, at least in Michigan and perhaps beyond, given the paucity of significant municipal bankruptcy filings historically and the resulting focus on the Detroit case," said the report from managing directors Amy Laskey and Richard Raphael and director Arlene Bohner.

"Moreover, the governor's comment that state funds will not bail out bondholders or Wall Street but are going to Michiganders suggests as 'us versus them' orientation to debt repayment that undermines a willingness to pay public debt in Michigan."

Minnesota leads new issues

Looking to the week's new-issue calendar, activity will be relatively light, with a few large offerings and several smaller deals. Among the bigger deals, the State of Minnesota plans to offer $467,935,000 of series 2014 state general fund appropriation bonds in two tranches.

The deal includes $397.68 million of series 2014A tax-exempt bonds and $70,255,000 of series 2014B taxable bonds.

The offering will be conducted through senior manager RBC Capital Markets LLC.

The state intends to use proceeds from the offering to finance the replacement of the Hubert H. Humphrey Metrodome football stadium in Minneapolis.

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