Munis weaken along with Treasuries; retail snaps up bonds; New York preps $800 million deal

By Sheri Kasprzak

New York, Feb. 21 - Municipals were slightly weaker on Tuesday following the Presidents Day holiday, traders reported.

Bids dried up, said one trader, as Treasuries dropped.

"There was a bit of activity early in the day. It really stalled as Treasuries declined," the trader said.

Long bonds were the most affected by the drop, with yields seen higher by about 3 basis points, said the trader.

Despite the weakness in the market, retail interest in munis is strong, the trader said. Demand is still driving the market, he noted, and with refundings coming up, supply will likely increase as the year progresses to meet that demand.

In fact, Remo Di Re, vice president and senior municipal bond credit strategist with RBC Wealth Management Portfolio Advisory Group, expects an increase in refunding activity during the year.

"The overall news for states with respect to revenue trends has been for the most part positive," Di Re wrote Tuesday.

"Despite rebounding tax revenue and increases in rainy-day funds and other reserves, it is our opinion states will remain conservative. The slowly improving U.S. economy is likely to limit any significant new money debt issuance. We do, however, anticipate a pick-up in refunding activity throughout the year as issuers take advantage of historically low interest rates."

New York leads supply

Supply for the week ahead will be around $5 billion, said Tom Kozlik, led by an $800 million sale of series 2012E-F general obligation bonds from the City of New York. The bonds will be sold through lead manager Morgan Stanley & Co. LLC.

"For the municipal bond market, low AAA benchmark yields and low issuance remains the norm again at the start of this holiday-shortened week," Kozlik wrote Tuesday.

"Investment Company Institute data from Feb. 8 showed slightly higher, positive flows to municipal mutual funds, indicating strong retail demand for municipals is continuing. Flows to municipal funds came in at about $1.7 billion, up from $1.6 billion during the week of Feb. 1."

Louisiana Citizens deal ahead

Also coming up during the week, the Louisiana Citizens Property Insurance Corp. is gearing up to sell $56 million of series 2012 assessment revenue refunding bonds (A3/A-/A-) through Raymond James & Associates Inc.

"Moody's raised its rating on Louisiana Citizens Property Insurance Corp., with $894 million in debt outstanding, to A3 from Baa1, citing strengthened management and administration processes," wrote Alan Schankel, managing director with Janney Montgomery Scott LLC.

"LCPIC is the insurer of last resort in the Louisiana residential property insurance market. A lack of recent storm activity has bolstered the insurer's finances, after a $1.1 billion loss in 2003, in the damage aftermath of the Katrina and Rita hurricanes."

Proceeds from the sale will be used to pay for losses sustained during those two hurricanes.

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