Municipal yields firm as primary activity dwindles; Colorado brings $125 million of TRANs

By Sheri Kasprzak

New York, June 28 - Municipals were firmer on Thursday after the majority of the new issues priced, said market insiders, but they still underperformed Treasuries.

"It's still quiet, but there's less pressure. The tone is a bit firmer, particularly around 10 years, by a basis point or two," said one trader reached in the afternoon.

"Almost everything of significance has already priced. Secondary is still pretty quiet, though. I think we're starting to get that holiday feeling with July 4th coming up."

In broader municipals news, June saw strong flows from redemptions, said Alan Schankel, managing director with Janney Montgomery Scott LLC, but July is the top municipal redemption month of the year, with $30 billion from maturities and pre-refunding redemptions waiting for reinvestment.

"Bolstering demand further is the solid pace of inflows to municipal mutual funds, at $860 million in the week ended June 20 and totaling $26 billion in 2012," Schankel said Thursday.

Downgrade 'no surprise'

Meanwhile, Schankel said Thursday, the day after Stockton, Calif., announced it would be filing for bankruptcy, that it was "no surprise" to see Standard & Poor's downgrade its rating on the city's debt to D, or default, from SD, or selective default.

"In addition to skipping about $10 million in debt payments in the coming fiscal year, Stockton plans to reduce and ultimately end payments for retiree health care," Schankel said.

"Most of debt service payments on the more than $300 million in debt payable from Stockton's general fund are covered by bond insurance or letters of credit. Assured Guaranty backs about $150 million, while National and Ambac account for another $100 million."

Colorado brings TRANs

In primary action Thursday, the State of Colorado priced $125 million of series 2012B education loan program tax and revenue anticipation notes, said a pricing sheet.

The notes (MIG 1/SP-1+/) were sold competitively with Bank of America Merrill Lynch winning the bid, said Charles Scheibe, chief financial officer with the state treasurer's office. The true interest cost came in at 0.199581%.

The notes are due June 27, 2013, have a 2% coupon and priced at 101.746.

"The state typically goes to market with short-term debt twice a year, once in late June, early July and once again in December, early January," Scheibe said in an interview Thursday.

"The last time was Jan. 10, 2012, and the true interest cost was 0.110128% and the net interest cost was 0.111084% on a total sale of $230 million."

Proceeds will be used to make interest-free loans to certain Colorado school districts to alleviate temporary general fund cash flow deficits expected during the fiscal year ending June 30, 2013.

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