Munis end unchanged despite Treasury gains; lighter primary action to be led by tobacco deal

By Sheri Kasprzak

New York, June 24 - Although Treasuries were boosted on Friday on worries that Greece's economic struggles will continue, municipals rounded out the week flat, market insiders said.

Stocks took a tumble, and Treasuries were improved in turn, but those gains were all Greek to the muni market.

The foreign issues are only part of the reason municipals failed to gain any ground Friday, said one trader.

"Yields are still way too low for retail, and they're hesitant to move up the yield curve," said the trader.

"Longer bonds are more attractive, but there's still this paranoia out there, I think. As the year goes on, it might get a little better."

In the broader market, stronger Treasuries are pushing shorter muni-to-Treasury ratios to the highest level in three months, said Alan Schankel, managing director at Janney Montgomery Scott LLC.

"Five-year triple-A benchmarks are at 82% of Treasury yields, and the ratios for two years is 120%," wrote Schankel in a report released Friday.

"The two-year triple-A tax-free yield is 0.42%, while a like-maturity Treasury bond carries a yield of only 0.35%, a big differential in percentage terms. Tax-free mutual funds registered the six consecutive week of inflows, with the pace modest but consistently positive at $75 million for the week ended June 15."

Primary market stalls

For the first time in several weeks, the new issue volume will be below $5 billion, Schankel said.

The bulk of the week's activity will come from a $900 million offering from Citizens Property Insurance Corp. of Florida and the Tobacco Settlement Corp. of New York, which intends to bring $975.555 million. The tobacco bonds will refinance higher-coupon debt, benefitting from the appropriation-based backing of the state, said Schankel.

A recent volume prediction for the week ahead came in at about $3.5 billion. The upcoming July 4 holiday could be responsible for the expected drop in volume.

Tobacco bonds in two tranches

New York's tobacco deal (/AA-/AA-) will be sold during the coming week in two tranches through Barclays Capital Inc. and Citigroup Global Markets Inc.

The offering includes $419.765 million of series 2011A bonds and $555.79 million of series 2011B bonds. Both tranches are due from 2013 to 2018.

The corporation intends to refinance its series 2003A-1C and 2003B-1C bonds with the proceeds.

Citizens Property sale planned

The Citizens Property offering of series 2011A coastal account senior secured bonds will be sold through Citigroup.

Proceeds from that deal will be used to help the government-controlled insurer meet its claim-paying needs for the 2011 hurricane season for its coastal account.

Dallas preps water deal

Looking out on the horizon, the City of Dallas is set to price $236.3 million of series 2011 waterworks and sewer system revenue refunding bonds, said a preliminary official statement.

The bonds (Aa1/AAA/) will be sold through senior managers J.P. Morgan Securities LLC and M.R. Beal & Co. Inc.

The bonds are due 2013 to 2040.

Proceeds will be used to refund $148 million of outstanding commercial paper notes and to refund other debt.

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