Municipal bonds retain firmer tone; analyst expects local governments to be pressured in 2014

By Sheri Kasprzak

New York, Jan. 7 - Municipals rounded out another session on a firmer note, with yields seen better by about a basis point across the yield curve, insiders said, although munis continued to underperform better Treasuries.

The market saw the first offerings of the New Year price.

Amid the new issues pricing, the Massachusetts Development Finance Authority sold $81.82 million of series 2014 revenue bonds for Phillips Academy.

The deal included $51.57 million of series 2014A tax-exempt bonds and $30.25 million of series 2014B taxable bonds, said a pricing sheet.

The 2014A bonds are due in 2038, 2039 and 2043 with 5% coupons.

The 2014B bonds are due Sept. 1, 2043, have a 4.844% coupon and priced at par.

The bonds (Aaa/AAA/) were sold through J.P. Morgan Securities LLC and Citigroup Global Markets Inc.

Proceeds will be used to finance the construction, renovation and improvement of dormitory buildings, academy halls and other campus buildings; to install electronic security systems throughout the Phillips Academy campus and to refund existing bonds.

Janney outlook 'cautious'

Elsewhere, Tom Kozlik, municipal credit analyst with Janney Montgomery Scott LLC, said his outlook for U.S. local governments is cautious, even though the U.S. economy was mostly stronger in 2013.

"In 2014, we expect economic growth at a slower than historical pace, low state aid payments, questions surrounding housing and budgetary uncertainty to continue to pressure local governments," Kozlik wrote Tuesday.

Even so, Kozlik predicts the majority of local governments will remain highly rated. He noted that there are just over 7,000 local governments rated by Moody's Investors Service with ratings between Aa2 and Aa3.

"Our cautious outlook does not mean investors should shun local governments," Kozlik wrote.

"It simply means investors need to be increasingly conscious of the factors pressuring local governments and investors must carefully assess credits on an individual basis."

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