Municipal bonds stronger as market absorbs Federal Reserve rate news; new deal action slows

By Cristal Cody

Prospect News, Jan. 26 - Municipal bonds traded stronger on Thursday on the Federal Reserve's plan to keep rates exceptionally low through 2014 and on a lack of new deals, sources said.

The Fed's announcement on Wednesday leaked over into trading on Thursday and "propelled people into buying mode," a municipal bond source said.

Treasuries also rallied. The benchmark 10-year Treasury note yield fell 7 basis points to 1.93%. The 30-year bond yield dropped to 3.09% from 3.15%.

Municipal bonds on Thursday traded "pretty strong" over the day, a trader said. It has been "a couple days in a row that we've bounced considerably from top to bottom. The scale bumped anywhere from 3 to 5 basis points top to bottom, moving up in price, drop in yield. There's still a lack of supply, and people are just trying to grab hold."

Sources say there is not enough secondary supply to satisfy investor demand.

Municipal bonds ended "anywhere from 2 to 5 basis points richer on the day," the trader said.

Activity is expected to be light on Friday. Two deals will price, one from El Paso, Texas, and the other from the Georgia Private Colleges and Universities Authority for Mercer University.

"The morning should be brisk," a source said.

A couple upcoming offerings under $100 million were announced on Thursday.

The Dormitory Authority of the State of New York intends to bring $91.71 million of series 2012 revenue bonds (Aa2/AA-/) for the Memorial Sloan-Kettering Cancer Center, according to a preliminary official statement.

Goldman Sachs & Co. is the lead manager.

Proceeds will be used to finance or refinance costs for an ambulatory care facility in Harrison, N.Y.

J. Paul Getty Trust plans sale

Another sale is on the calendar from the California Infrastructure and Economic Development Bank, which intends to sell $69.69 million of refunding revenue bonds (Aaa/AAA/) in two tranches for the J. Paul Getty Trust, according to a preliminary official statement.

The sale includes $57.39 million of series 2012A1 bonds with serial maturities from 2014 through 2023 and $12.3 million of series 2012A2 bonds due Oct. 1, 2012 through Oct. 1, 2014.

Morgan Stanley & Co. LLC and Estrada Hinojosa & Co., Inc. are the bookrunners.

Proceeds will be used to refund the outstanding series 2004A and 2004B variable-rate revenue bonds and to pay interest rate swap termination payments in connection with the termination of two interest rate swap agreements.

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