Riskier munis sell off, high-grade bonds weaker on uncertainty; California to sell $1 billion

By Cristal Cody

Tupelo, Miss., Aug. 9 - Municipal bond prices firmed in the late afternoon on Tuesday after the Federal Reserve announced it will keep rates low through mid-2013.

"Through 3 o'clock today it was slightly weaker, and now it looks stronger again," one bond source said. "Basically, treading water and waiting to see what's going to happen."

Investors continued waiting to see how the Standard & Poor's downgrade to the United States' credit rating will impact municipal bond ratings.

"It's not clear how many downgrades there will be or how extensively they will downgrade into the general government sector," a bond source said. "It's too early to know if what's happening will trigger investors to sell their municipal shares."

Riskier municipal bonds have been affected, a bond source said.

"High-yield munis are selling off faster," the source said. "In regular high-grade municipals, the price reaction has been muted."

For example, Ohio Tobacco Asset Settlement's long bonds have widened 35 basis points since Thursday, the source said.

The bonds due 2047 traded on Tuesday to yield 8.5%. "They were sold on Aug. 4 with a 8.15% yield," the source said.

Investment-grade municipal bond yields were flat to slightly weaker.

"High-grade bond yields were off as much as 5 basis points today, and they were 2 or 3 basis points stronger yesterday," the source said.

Volatility is expected in the near term as the wait-and-see mode continues.

"We need to point out that the federal downgrade does not transform high-quality munis into low-quality munis, nor does it increase the practical likelihood that they will default," according to a DWS Investments Deutsche Bank Group research note on Tuesday. "We expect it to cause a short-term increase in investor risk-aversion and volatility. Also, we wouldn't be surprised if the tax-free fixed-income asset class is a net beneficiary of these market developments."

Light primary activity is expected over the remainder of the week. Renton School District No. 403 in Washington will offer $63.035 million of general obligation bonds in a competitive sale on Wednesday.

California plans $1 billion

Coming up, a $1 billion sale from the State of California Department of Water Resources is planned for next week.

The department will price $1 billion of series 2011N power supply revenue bonds on Aug. 17, according to a preliminary statement released by the state.

The bonds (AA-) will be structured as serials due from 2012 to 2021.

The notes are being sold by bookrunning senior manager Morgan Stanley & Co. LLC and joint senior manager De La Rosa & Co.

Settlement is scheduled for Aug. 31.

Proceeds will be used to repay series 2002A fixed-rate bonds and outstanding variable-rate bonds.

Southern California to price

Southern California Public Power Authority intends to sell $159.44 million of revenue bonds for the Milford Wind Corridor phase II project, according to a preliminary official statement.

The series 2011-1 bonds (/AA-/AA-) have serial maturities from 2012 through 2031.

Barclays Capital Inc. is the lead manager of the negotiated sale. The co-managers are Bank of America Merrill Lynch, Citigroup Global Markets Inc., Loop Capital Markets LLC and Stone & Youngberg LLC.

Proceeds will be used to prepay for electricity supply from the wind-powered electric facility near Milford, Utah.

Cucamonga Valley plans sale

Also in California, the Cucamonga Valley Water District in San Bernardino County expects to price $110.98 million of water revenue refunding bonds, according to a preliminary official statement.

The series 2011A bonds (Aa3/AA+/) have serial maturities from 2012 through 2031 and a term due 2035.

Stone & Youngberg is the senior manager of the negotiated sale. Bank of America Merrill Lynch is the co-manager.

Proceeds will be used to defease and refund the district's outstanding series 2000 and series 2001 certificates of participation and to acquire a reserve fund insurance policy and a municipal bond insurance policy to insure a portion of the bonds.

Dallas, Fort Worth, to price

Also coming up, the cities of Dallas and Fort Worth, Texas, intend to bring $105.15 million of Dallas/Fort Worth International Airport joint revenue refunding bonds, according to a preliminary official statement.

The series 2011D bonds (A1/A+/A+) have serial maturities from 2012 through 2032 and a term due 2036.

M.R. Beal & Co. is the senior manager of the negotiated sale. RBC Capital Markets Corp. is the co-manager.

Proceeds will be used to refund the outstanding series 2001A joint revenue and improvement refunding bonds.

Devika Patel contributed to this report

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.