Municipals weaker ahead of $10 billion slate; Los Angeles USD, Massachusetts plan large deals

By Sheri Kasprzak

New York, Feb. 26 – Municipals closed the week on a weaker note, trader said, as the market prepares for the largest new issue slate in almost a year. About $10 billion of new offerings await investors, led by two billion-dollar offerings from issuers in California and Massachusetts.

The 10-year triple-A muni bond yield rose by 2 basis points to 1.82% Friday and the 30-year bond yield ended the session 3 bps higher at 2.85%, traders said in the afternoon.

Meanwhile, mutual fund flow data from Lipper Inc. indicated a 21st consecutive week of positive flows with $696 million of new assets.

Even so, Alan Schankel, managing director with Janney Montgomery Scott LLC, said Friday that investors are “requiring more yield on a relative basis if ratios are an indication. Based on MMA’s 1.80% 10-year yield and the Treasury’s 10-year close at 1.72%, the muni-to-Treasury ratio hit 105%, the highest level since last August and well above the 99% average of the past five years.”

Rising supply could temper any ratio reversion, especially with the coming week’s supply jumping to about $10 billion.

L.A. USD deal set

Heading up the large slate is a $1,225,000,000 offering of general obligation bonds from the Los Angeles Unified School District.

The district is on tap Tuesday to price the G.O. bonds. Citigroup Global Markets Inc. and Wells Fargo Securities LLC are the senior managers for the bonds (Aa2//AAA).

The deal includes $650 million of election of 2008 series 2016A G.O. bonds and $575 million of series 2016 G.O. refunding bonds.

Proceeds will be used to finance school construction projects and refund existing debt.

Massachusetts readies offering

Also coming up, the Commonwealth of Massachusetts is poised to price $1,101,335,000 of series 2016 G.O. bonds (Aa1/AA+/AA+) on Thursday.

The bonds will be sold through senior managers BofA Merrill Lynch and Wells Fargo.

The deal includes $600 million of series 2016A consolidated loan G.O. bonds due 2018 to 2038 with term bonds due in 2041 and 2046 and $501,335,000 of series 2016A G.O. refunding bonds due 2016 to 2033.

Proceeds will be used to finance capital projects in the state.

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