Municipals largely unchanged ahead of holiday-shortened week; New York G.O. bonds trade higher

By Sheri Kasprzak

New York, Oct. 5 - The municipals market ended Friday on a flat note after rallying throughout the week on solid secondary action, said market sources. The upcoming holiday-shortened week should curb supply only slightly, said one trader.

"It should be somewhat lighter [in supply] than the past few weeks, but the [Columbus Day] holiday doesn't seem to be impacting supply by that much," the trader said.

Meanwhile, several of the week's larger deals were seen trading better in secondary, said Guy LeBas, chief fixed income strategist with Janney Montgomery Scott LLC.

"As with several of the week's larger new issues, the New York City G.O. deal traded healthily in early secondary activity with the 5% 2034 maturity pricing at a 2.93% yield to call and trading better to a 2.89%," LeBas said in a report Friday.

"The retail-structured 3.25% 2035 maturity performed even better."

New York sold in tranches

The $1,125,000,000 of 2013 bonds priced Wednesday in three tranches through J.P. Morgan Securities LLC.

The deal included $525 million of series 2013A-1 tax-exempt bonds, $457.99 million of series 2013B tax-exempt bonds and $142.01 million of series 2013C tax-exempt bonds.

The 2013A-1 bonds are due 2014 to 2035 with 3% to 5% coupons. The 2013B bonds are due 2014 to 2032 with coupons from 3% to 5%. The 2013C bonds are due 2013 to 2033 with 2% to 5% coupons.

Proceeds will be used to finance some of the city's capital needs under its 2012 to 2016 financial plan.

High-yield munis push higher

In other muni action, high-yield municipal bonds, as tracked by the S&P Municipal Bond High Yield index, push higher and have returned more than 14.4% year to date as yields have come down 116 basis points since the end of 2011, said J.R. Rieger, vice president of fixed income indexes at Standard & Poor's.

"The spread between investment-grade and high-yield municipal bonds has moved wider by about 7 bps from its tightest point, however, to end last night at 322 bps, or a change of 84 bps since year-end," Rieger said.

Tax-exempt investment-grade munis, as tracked by the S&P National AMT-Free Municipal Bond index, have returned 6.38% year to date.

"State general obligation bonds are underperforming relative to local general obligation bonds with state G.O.s returning 4.96% versus local G.O.s returning 6.65% year to date," Rieger said.

Among recent high-yield new-issue offerings, the Guam Power Authority brought $344.36 million of series 2012A revenue bonds on Thursday.

The bonds (Baa3/BBB-/BBB-) were sold through Morgan Stanley & Co. LLC and Barclays.

The bonds are due 2013 to 2027 with term bonds due in 2030 and 2034. The serial coupons range from 2% to 5%. The 2030 bonds have a 5% coupon and priced at 109.345, and the 2034 bonds have a 5% coupon and priced at 105.203.

Proceeds will be used to refund the authority's series 1993 and 1999 revenue bonds.

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