Munis close stronger, Treasuries improve on jobs data; Puerto Rico index returns negative 2.7%

By Sheri Kasprzak

New York, May 8 – Municipals ended the week stronger as nonfarm payrolls data sent Treasuries higher, market insiders said.

Yields on triple-A rated munis were seen lower by about 4 basis points.

Nonfarm payrolls failed to meet economists’ expectations, sending Treasuries higher as well. The five-year note yield fell by 5 bps, and the 10-year yield fell by 2 bps.

New rules cause trouble

California’s water conservation mandate could mean trouble for water supply and storage projects as the state struggles with a severe drought, said Fitch Ratings analysts.

Fitch analysts Douglas Scott, Kathryn Masterson, Andrew Ward, Shannon Groff and Rob Rowan pointed to a new water conservation mandate that will reduce revenues available to pay bondholders at many agencies, which might create a disincentive to invest in necessary water supply and storage projects.

“The rules adopted this week dictate cuts in customer usage regardless of local supply conditions,” the analysts wrote.

“The impact will be greatest in Southern California communities that have borrowed billions of dollars to invest in water supply reliability and now must meet some of the highest reductions. The cutback levels and short compliance timeframe set by the board suggest many utilities will likely fail to meet the targets.”

The rules require all retail California water utilities to cut usage compared to 2013 by 8% to 36% between June and February 2016.

“We expect the financial impact will occur primarily in fiscal 2016 and to vary across the 49 Fitch-rated retail California water utilities,” the analysts wrote.

“Utilities that have decoupled revenues from water sales through a number of mechanisms will likely sustain their credit quality during this emergency compliance order.”

Puerto Rico index falls

Looking to Puerto Rico news, the S&P Municipal Bond Puerto Rico Bond index has returned negative 2.7% this year to date as bond prices continue to drop and yields rise, said J.R. Rieger, global head of fixed income at S&P Dow Jones Indices.

The average yield of bonds in the index rose to record highs this week, ending at 8.19%. The 2014 year-end yield was 7.57%.

“It gets worse when looking at Puerto Rico general obligation bonds as the S&P Municipal Bond Puerto Rico General Obligation index has also seen its yield hit highs of 8.84% (2014 year-end yield was 7.94%),” Rieger wrote Friday.

The average price of bonds in the Puerto Rico index sunk to just over 48 cents on the dollar, Rieger noted.

Triborough brings bonds

Moving to primary action, the Triborough Bridge and Tunnel Authority hit the market with $225 million of series 2015A general revenue bonds.

The bonds were sold through Loop Capital Markets LLC and Academy Securities Inc.

The bonds are due 2015 to 2035 with term bonds due in 2040, 2045 and 2050, said a pricing sheet. The serial coupons range from 1% to 5% with 0.14% to 3.40% yields. The 2040 bonds have a 5% coupon and priced at 112.295 to yield 3.53%, the 2045 bonds have a 5.25% coupon and priced at 114.658 to yield 3.50%, and the 2050 bonds have a 5% coupon and priced at 110.168 to yield 3.77%.

Proceeds will be used to finance bridge and tunnel projects.

Salt River arranges deal

Heading to the new-issue calendar for the week ahead, the Salt River Project Agricultural Improvement and Power District of Arizona will lead offerings with $832,895,000 of series 2015A electric system revenue bonds (Aa1/AA/). Pricing is scheduled for Wednesday.

The bonds will be offered through Goldman Sachs & Co.

Proceeds will refund the district’s series 2004A, 2005A and 2006A electric system revenue bonds.

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