Municipals firm 10 years and out; Columbus prepares $196.7 million offering of refunding bonds

By Sheri Kasprzak

New York, Aug. 27 - Municipals were sparsely traded on Monday in what will likely be a very slow week for new issues, market insiders reported.

Yields were 2 basis points to 3 bps firmer outside of 10 years, said one trader, in line with Treasuries.

"It's been slow-going, but that's how the whole week is going to be," said one trader.

"I did notice that interest is shifting to long bonds. Last week, shorter maturities were trading, but I think there is a little bit of fear in the market, and investors are out for longer bonds."

This week will provide little new issuance for investors to sink their teeth into. Just $2.3 billion of new deals are on the calendar, said Tom Kozlik, municipal credit analyst with Janney Montgomery Scott LLC.

Columbus readies bond deal

The highlight of the calendar, said Kozlik, is the City of Columbus, Ohio's $196.7 million sale of series 2012 various-purpose refunding bonds. A retail order period on Monday saw good interest, said one market source.

"There's not much else out there, and this is a pretty substantial, triple-A rated deal, so it went well," the source said.

The offering will price through lead manager Bank of America Merrill Lynch and includes $87.6 million of series 2012-3 various-purpose unlimited tax refunding bonds, $41.9 million of series 2012-4 various-purpose limited tax refunding bonds, $56.1 million of series 2012-5 taxable various-purpose unlimited tax refunding bonds and $11.1 million of series 2012-6 taxable various-purpose limited tax refunding bonds.

The bonds (Aaa/AAA/AAA) will be used to refund various maturities of the city's series 2004-1, 2005D-E, 2006A-B, 2007A-B, 2004-2 and 2003A bonds.

Puerto Rico G.O. spreads widen

Meanwhile, the yield differential between indexes that track Puerto Rico general obligation bonds and generic Baa-rated bonds has widened substantially since late July, said Alan Schankel, managing director with Janney.

"We remain cautious on all Puerto Rico bonds, given the island's struggling economy and large debt load, and continue to advise against over concentration," Schankel said in a report Monday.

Schankel noted in the report that as of July 27, Puerto Rico G.O. yields were about 20 bps above generic Baa yields in 10- and 30-year maturities.

"In the intervening three weeks, the gap has widened to as much as 50 bps," Schankel said.

"Although we continue to caution against over concentration in Puerto Rico credits, given its fragile economy and high debt load, the risk-reward proposition, particularly for general obligation and Commonwealth-guaranteed issues, has improved."

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