Municipals seen cheaper as bulk of week's deals price; new issuance could drop substantially

By Sheri Kasprzak

New York, May 22 - Municipals rounded out another session cheaper as the majority of the new issues for the week priced and secondary activity remained light, market sources said.

On the long end of the curve, municipals weakened by 1 basis point to 2 bps. The rest of the muni market was slightly weaker on the session.

In Treasuries, the five-year note yield rose by 2.5 bps to close the session at 1.544%, the 10-year note yield rose by 1.5 bps to 2.55%, and the 30-year bond yield climbed by half a basis point to 3.423% after the National Association of Realtors released its April existing home sales report, indicating sales increased by 1.3%, the first increase this year.

Issuance expected to drop

Moving to broader market news, new municipal issuance for 2014 could drop substantially over 2013's numbers, said Tom Kozlik, municipal credit analyst with Janney Montgomery Scott LLC.

Many forecasts have suggested a slight drop over 2013's numbers, with 2014 totals expected at around $309 billion, down from $333 billion for 2013.

"Through the first four months of 2014 (end of April), there has been $89 billion of municipal issuance; annualize those results and issuance based on the first part of the year would end up at only about $270 billion," Kozlik wrote Thursday.

"That is between $200 billion and $287 billion sold in 2000 and 2001. In all, we think issuance will come in somewhere between $250 [billion] and $275 billion as of Dec. 31, 2014."

Rates, other products to blame

Among the reasons for this drop in issuance, Kozlik pointed to higher interest rates and the fact that some issuers are choosing other debt products, like direct bank loans. Additionally, some issuers still have in place austerity measures due to a lower revenue trend sparked by the Great Recession.

Political and voter attitudes are another possible culprit, as is a lack of broad public policy to support infrastructure spending.

East Bay MUD deal prices

Amid Thursday's primary activity, the East Bay Municipal Utility District of California hit the market with $371,045,000 of series 2014 water system refunding revenue bonds.

The bonds (Aa1/AAA/AA+) were sold on a negotiated basis. Wells Fargo Securities LLC was the lead manager for the $128,315,000 of series 2014A bonds, and J.P. Morgan Securities LLC was the senior manager for the $242.73 million of series 2014B bonds.

The 2014A bonds are due 2027 to 2035 with 3.5% to 5% coupons and 2.53% to 3.50% yields, a pricing sheet said.

The 2014B bonds are due 2015 to 2030 with coupons from 2% to 5% with yields from 0.13% to 3.00%.

Proceeds will be used to refund the district's series 2005A bonds for debt service savings.

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