Municipals move into holiday mode; Massachusetts' long bonds yield 30 bps over benchmark

By Sheri Kasprzak

New York, Dec. 21 - Municipals had a distinct holiday tone on Wednesday as market insiders turned their attention more toward family and friends, traders reported.

"We don't have very much going on to move us substantially," said one trader.

The majority of the week's slim primary calendar priced on Tuesday, which gave the market some firmness, said the trader. The rest of the week will have slim pickings.

On Wednesday, there was some firmness, though most of the market remained flat. Thirty-year yields were seen down by 2.5 basis points, and 20-year yields were down by more than 3 bps.

Massachusetts' yields

In primary action, the Commonwealth of Massachusetts' recently priced $400 million of series 2011E consolidated loan general obligation bonds saw yields higher than the triple-A benchmark, especially on the long end, said Alan Schankel, managing director with Janney Montgomery Scott LLC.

The bonds (Aa1//AA+) were sold on a competitive basis Tuesday with J.P. Morgan Securities LLC winning the bid.

The bonds are due 2015 to 2018 and 2021 to 2027 with 3% to 5% coupons.

"Yields for the [Massachusetts] issue were on the AAA benchmark yield in six- and seven-year maturities, 12 bps higher in 10 and 11 years and 30 bps above the benchmark in 2023 and 2027," said Schankel.

Proceeds will be used to finance a portion of the commonwealth's capital plans.

National Public Finance downgraded

In insurance news, Schankel said Wednesday that National Public Finance Guarantee Corp. was dropped to Baa2 from Baa1 by Moody's Investors Service. The move followed the announcement that National Public Finance's parent company, MBIA Inc., will pay $1.1 billion to Morgan Stanley to settle a legal fight over guarantees on mortgage bonds.

"Moody's expressed concern that this and similar settlements will drain resources from MBIA, potentially flowing over to National," Schankel wrote in a report released Wednesday.

"In February 2009, MBIA created National to isolate the company's portfolio of insured municipal bonds from the mortgage-related exposure of MBIA. Although the move was approved by the New York State Insurance Department, as many as 18 parties challenged the restructuring in court, seeking to unwind the transaction and gain access to the capital underlying National as settlement of mortgage-related litigation."

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