Municipals flat to better; Puerto Rico Infrastructure Financing Authority defaults, downgraded

By Sheri Kasprzak

New York, Jan. 5 – Municipals held steady and were somewhat better in spots, traders reported.

Yields on shorter maturities were seen lower by as much as 4 basis points, but longer maturities held steady, said a trader in the afternoon.

The market outperformed Treasuries for the second straight session. The 30-year Treasury bond yield rose by 4 bps, and the two-year yield rose by 2 bps.

Elsewhere in the municipals market, net inflows were $1.3 billion for the week ended Dec. 30, according to Lipper Inc., compared with $809.5 million of net inflows the week before.

High-yield muni funds reported $300.2 million of net inflows, compared with $291.4 million the previous week.

Looking to supply, this week’s primary calendar features $2.75 billion of activity, substantially below the $7 billion weekly average for 2015, said a market insider.

Puerto Rico authority defaults

The Puerto Rico Infrastructure Financing Authority’s default on a $36 million interest payment came as a surprise to few market insiders, and Standard & Poor’s moved swiftly to downgrade the authority’s revenue bonds to D after the announcement.

The authority missed its payment Monday after Puerto Rico’s Gov. Alejandro Padilla Garcia ordered that a federal excise tax on Puerto Rican rum, typically used to make these payments, be clawed back to make payments on general obligation debt.

Other authorities within the commonwealth have reserve funds to cover debt in these cases, but PRIFA is not one of them.

After the news, there was some improvement in Puerto Rico G.O. debt. The commonwealth’s 8% G.O. bonds of 2035 were trading at an average price of 73.50 late Monday, compared with a recent 69.64 average, said a trader Tuesday morning.

U of Texas deal planned

Coming up on Thursday is the week’s largest offering. The University of Texas System is on tap to price $450 million of revenue financing system bonds (Aaa/AAA/AAA) through BofA Merrill Lynch.

The deal includes $250 million of taxable bonds and $200 million of green bonds.

Allen Hah, the system’s assistant vice chancellor of finance, said in a brief interview Tuesday that he anticipates strong demand for the bonds despite the recent interest rate hike.

The system aims to use a portion of the proceeds from the deal to refund series A and series B commercial paper notes in an effort, Hah said, to replace an interim financing vehicle with long-term financing.

The remainder of the proceeds will be used to finance capital improvements.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.