Weaker tone persists amid light trading; Maryland comes to market with $727.03 million bonds

By Sheri Kasprzak

New York, Aug. 1 - Municipals continued to face some weakness Wednesday amid light trading action, traders reported.

"There's not a lot of trading, but the new issues do seem to be doing well," said a trader reached in the afternoon.

The new-issue pace has been decidedly slow, said Alan Schankel, managing director with Janney Montgomery Scott LLC.

"A slower summer pace was reflected in municipal new-issue volume for July, with the $26.6 billion total the lowest in five months," Schankel said.

According to Schankel, 2012's issuance still outpaces 2011's by 55%.

"Beneath the surface numbers of large new issue flows, borrowing for new projects and purposes is only slightly higher in 2012," Schankel said.

"This week's light slate is emblematic of the summer slowdown with about $6.4 billion on tap dominated by $1.15 billion Triborough Bridge and Tunnel [Authority of New York]."

Maryland leads primary

Looking to Wednesday's primary action, the State of Maryland sold $727,025,000 of series 2012 general obligation state and local facilities loan bonds, said a pricing sheet.

The offering included $26.34 million of series 2012A bonds, $478.66 million of series 2012B bonds, $23 million of series 2012C taxable bonds, $15.23 million of series 2012D taxable bonds and $183,795,000 of series 2012E refunding bonds.

The 2012A bonds are due 2015 to 2027 with 2% to 5% coupons. The 2012B bonds are due 2015 to 2027 with 2.25% to 5% coupons. The 2012C bonds are due Aug. 1, 2015, have a 0.4% coupon and priced at par. The 2012D bonds are due Aug. 1, 2027, have a 2.8% coupon and priced at 100.609. The 2012E bonds are due 2018 to 2020 with 4.5% coupons.

The bonds (Aaa/AAA/AAA) were sold through Citigroup Global Markets Inc.

Proceeds will be used for public purposes, including the acquisition and construction of state facilities, capital grants to local governments, to match loans and grants to local governments, nonprofit institutions and other entities, for capital grants to local education agencies for public school renovations and to purchase federal securities for the advance refunding of outstanding G.O. bonds.

Investors unfazed

Despite the publicity given to a few bankruptcies, such as Stockton and San Bernardino in California, the vast majority of investors have a healthy perspective on the fundamentals of bond investing, said James A. Klotz, president of FMS Bonds, Inc.

"In Illinois, for example, where the state's myriad fiscal difficulties are well-documented, investors earlier this month [July] snapped up $1.5 billion in debt issued to repay a federal loan. The bonds were backed by a dedicated stream of unemployment insurance taxes and rated AA+ by Fitch Ratings and AA by Standard & Poor's. Investors placed about 10 times more orders than there were bonds available. ..."

Klotz pointed to similar sales in other state like Colorado and Michigan, and he said there have been about $28 billion of net inflows into muni bond funds.

"The enthusiasm for munis would seem to run counter to the dire warnings sounded in the media but is consistent with the facts," Klotz said.

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