Municipals close out flat to firmer; absence of Build America Bonds impacts new-issue supply

By Sheri Kasprzak

New York, Jan. 4 - Municipal yields were yet again mostly unchanged to a touch firmer on Tuesday amid low new-issue supply, said market insiders.

"Toward the middle, yields might be better by a basis point or two," said one trader. "The rest of the curve is flat."

A sudden lag in new issues is helping yields that were hard-hit when supply boomed in the late fall and early winter. Alan Schankel, managing director with Janney Montgomery Scott LLC, said Tuesday that a lack of Build America Bonds in the marketplace could be dampening new-issue activity.

"Low new-issue supply is also reflective of exhaustion from the final frenzy of issuance of Build America Bonds, which took 2010 total long-term volume to a record $432 billion, exceeding the previous high of $430 billion in 2007," Schankel said.

Schankel also noted in a report released Tuesday that headlines about cash-strapped states continue to cause panic in the market, but his firm cautioned against making snap decisions on the municipals market based on headlines alone.

"WE continue to caution against panic in the face of news headlines," he wrote.

"Times are and will continue to be tough, but even the poster children for distressed states such as Illinois and California have very low chances of missed debt service payment. The relative yields of these states make for interesting consideration: based on MMD benchmark yields, Delaware (Aaa/AAA/AAA) yields have risen 36 bps to 3.16% since Dec. 1; California (A1/A-/A-) yields also rose 36 bps to 4.41%, while Illinois (A1/A+/A), the most trouble[d] of states, saw a yield increase of 71 bps to 5.26%."

Maine bonds price

In Tuesday's light primary action, the Maine Municipal Bond Bank priced $80.3 million of series 2011A bonds, said a pricing sheet.

The bonds (/AAA/AAA) were sold through Wells Fargo Securities LLC and Morgan Keegan & Co. Inc.

The bonds are due 2011 to 2031 with coupons from 2.375% to 5%.

Proceeds will be used to purchase municipal bonds from four governmental units.

Based in Augusta, the bond bank provides local governmental entities access to capital.

Walled Lake deal ahead

Looking out on the horizon, the Walled Lake Consolidated School District of Michigan plans to price $51.175 million of series 2011 general obligation refunding bonds, said a preliminary official statement.

The bonds will be sold through Stifel, Nicolaus & Co. Inc.

The bonds are due 2012 to 2022.

The district, which is based in Walled Lake, Mich., intends to use the proceeds to refund existing debt.

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