Municipals remain steady as supply stays low; new issue volume above $20 billion for August

By Sheri Kasprzak

New York, Aug. 30 - Municipals closed out yet another session largely unmoved, market insiders reported, as paltry new-deal volume and the approaching Labor Day weekend kept investors and traders alike out of the game.

"It's really slow," said one trader of secondary activity.

"There's the long weekend ahead, and volume is light. We're unmoved just about across the yield curve."

Meanwhile, new-issue volume for the month of August will total just over $20 billion, said Alan Schankel, managing director with Janney Montgomery Scott LLC. That's slightly above 2011's monthly average.

"The low-rate environment will likely generate an increase in refunding in coming months, but there is no sign that new money issue volume will increase post-Labor Day, with the 30-day visible supply hovering around $4 billion, the lowest level of the year," Schankel wrote Tuesday.

Schankel noted that the very light primary calendar ahead of Labor Day coupled with the aftermath of Tropical Storm Irene could make this one of the quietest weeks on recent record.

Tampa deal ahead

The City of Tampa is scheduled to bring $128.855 million of series 2011 water and sewer system improvement and refunding revenue bonds to market Wednesday.

Wells Fargo Securities LLC is the senior manager for the bonds (Aa1/AA+/AA+).

Proceeds will be used to prepay outstanding notes, refund the city's series 2001A water and sewer revenue bonds and fund various sewer capital improvements included in the city's five-year capital improvement program.

Tax-frees ride with Treasuries

Schankel noted in a report Tuesday that municipals finished higher last week after dropping for most of August, approaching record territory in some maturities.

"Reports of soft economic data and flight to quality reactions to European turmoil sent yields on some Treasury maturities to the lows of the 2008 liquidity crisis, pulling tax-free yields along for the ride," Schankel wrote.

"Muni-to-Treasury ratios remain elevated, with AAA benchmark yields on 10-year maturities hovering around 100% of like maturity Treasury levels all month and 30-year ratios well above 100%."

Muni mutual funds liquidate

Schankel reported that municipals may be facing some headwinds in September.

"After 11 consecutive weeks of inflows, investors in municipal mutual funds liquidated holdings in the four weekly periods ending Aug. 17," he wrote.

"Although fund flows typically reflect sentiment of the smaller investors who use mutual funds, they do shed light on overall confidence. The pace of outflows was well below the numbers seen early this year, but a return to liquidation, after 11 weeks of inflows, may indicate a sea of change."

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