Munis close out mostly firmer amid light activity; 2012 new issuance predicted to outpace 2011

By Sheri Kasprzak

New York, Jan. 17 - Municipals rounded out Tuesday on a mostly firmer note following the Martin Luther King Jr. holiday, said market insiders.

"There's not a whole lot of activity going on, especially given the holiday," said one trader reached during the session.

"Supply is kind of low. Even secondary is pretty quiet."

The long end was particularly strong, with 30-year yields seen down by nearly 3 basis points and 20-year yields seen down by nearly 2 bps.

Amid the light trading action Tuesday, the series three 2012A bonds recently priced by Jacksonville Electric Authority of Florida were seen moving. The 3% 2025 bonds were seen trading during the afternoon at 2.941% after pricing at 98.017 on Thursday.

"We begin a holiday shortened week with the same technical tailwinds that last week drove yields to the lowest level in years," wrote Alan Schankel, managing director with Janney Montgomery Scott LLC, in a report released Tuesday.

"Muni-to-Treasury ratios, although still above historical averages, fell to 92% in 10 years and 110% in 30 years. Long maturity performance is also illustrated by the differential between five-year and 30-year benchmark yields, which finished Friday at 239 basis points, well below the last year's high point on the slope of 321 bps in July."

New issues for the week ahead will total just over $4 billion, compared with the $5.6 billion weekly average of 2011, said Schankel. Demand continues to be strong, with mutual fund inflows on the longest positive streak since 2008.

Port Authority deal ahead

The highlight of the meager offerings in the week ahead is a $400 million issue of series 171 consolidated bonds from the Port Authority of New York and New Jersey.

"With $13 billion plus in outstanding debt, PANYNJ is the epitome of an essential service provider," said Schankel.

"Along with the [New York City Metropolitan Transportation Authority], the port authority has a near monopoly position on the various transportation conduits in the New York City area, with $3.5 billion in annual revenues generated from four major bridges, the Lincoln and Holland tunnels, three primary airports serving New York City, the PATH light rail system to New Jersey and the Port Authority bus terminal."

The bonds (Aa2/AA-/AA-) are slated to price competitively on Wednesday.

The bonds are due in 2042, and proceeds will be used to fund capital projects for the authority.

New issues to outpace 2011's

Looking more broadly at the market, Schankel reported Tuesday that his organization feels municipal new issue volume will exceed 2011's $295 billion by as much as 20%, with the increase fueled primarily by current refundings as borrowers take advantage of the lowest yields in at least a generation to refinance higher-rate issues.

Issuers will particularly look to refinance their 2002 bonds, many of which have 10-year call provisions, Schankel noted.

Out of the gate, however, "volume is slow, although the pace is consistent with last year's slow start," Schankel reported.

"Total issuance is anticipated at $4.2 billion this week, well below last year's average weekly pace of $5.6 billion. Thus far, there are few significant new issues listed for next week and beyond, although this could change quickly as issuers and investment bankers move to take advantage of the attractive low interest rate environment."

Meanwhile, however, demand is overwhelming the scant supply, Schankel said.

© 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.