Europe's troubles lower Treasury, muni yields; short bonds firm; Farmington, N.M., preps sale

By Sheri Kasprzak

New York, May 24 - Municipal yields were largely unchanged with some slight firmness seen on the short end of the curve, market insiders reported Monday.

"Some short bonds, mostly inside of 10 years, are down by 1 basis point, maybe slightly more," said one trader reached in the afternoon.

Meanwhile, Treasury yields have been pushed down due to Europe's financial crisis, which has dragged municipal yields down as well, said Alan Schankel, fixed income strategist at Janney Montgomery Scott LLC.

"The European contagion has pushed Treasury yields even lower and dragged munis along for the ride," Schankel said Monday.

"Although tax-free yields are again approaching the lowest level of the past 40 years, they may have further to go. Negative PPI [Producer Price Index] and CPI [Consumer Price Index] numbers for April dampened inflation worries. Single data points do not make a trend, but inflation seems to be receding as a concern for most investors. Inflationary expectations are a driver of long-term interest rates, and a lack of inflationary concerns bodes well for the absolute value of interest rates."

Even so, Treasuries' gains were stemmed a bit on Monday, with the 10-year note down by 3 bps.

Utah water sale ahead

Looking to Tuesday's primary calendar, the Central Utah Water Conservancy District is set to sell $233 million in series 2010A water conservancy revenue Build America Bonds.

"I think it will go well," said one sellsider connected to the deal.

"It's a solid issuer, and we sold quite a bit today [in the retail order period], so I think institutional will have a good amount of interest as well."

When asked if troubles in Europe have impacted the retail order period, the sellsider said, "It's possible. There is a foreign interest in BABs, but it's really hard to tell if we would have sold more to retail if the deal had been done earlier in the year."

The district will sell the bonds (/AA+/AA+) through George K. Baum & Co.

The bonds are due 2020 to 2030 with term bonds due 2035 and 2040.

Proceeds will fund capital improvements and defease the district's series 2009 bond anticipation notes.

The district, based in Orem, is a wholesale water provider.

Farmington sets deal

Also on Tuesday, the City of Farmington, N.M., is scheduled to price $343 million in series 2010 pollution control refunding revenue bonds (//A+) through J.P. Morgan Securities Inc.

Proceeds from the offering will be used to refund existing pollution control revenue bonds.

Washington's record offering

The largest sale of the week - and the largest sale ever for the issuer - will be a $1.1 billion sale of series 2010F motor vehicle tax general obligation bonds (Aa1/AA+/AA+) from the State of Washington.

The deal is reportedly the fourth-largest sale of Build America Bonds ever.

JPMorgan is the lead manager for the offering, the proceeds of which will be used to reimburse the state for highway and transportation improvements.

Stanford bonds to price

Out on the horizon, the California Health Facilities Financing Authority is set to sell $315.38 million in series 2010 refunding revenue bonds, said a preliminary official statement. The bonds will be sold for Stanford Hospital and Clinics.

The sale includes $160.12 million in series 2010A bonds and $155.26 million in series 2010B bonds.

The bonds (Aa3/A+/AA-) will be sold through senior manager Morgan Stanley & Co. Inc.

Proceeds will be used to refund the hospital's series 1998B and 2003B-D bonds, which were used to construct, equip and renovate Stanford Hospital and Clinics facilities.

The authority, based in Sacramento, provides financing for hospitals and health-care centers throughout the state. Stanford Hospitals and Clinics is based in Stanford, Calif., and operates health-care facilities.

Delaware sale set

Also coming up, the Delaware Transportation Authority is expected to sell $115 million in series 2010 grant anticipation bonds, said a preliminary official statement.

The bonds (Aa2/AA/) will be sold on a negotiated basis with Bank of America Merrill Lynch as the senior manager.

Proceeds will be used to acquire the right of way and begin construction on U.S. Route 301 at the Maryland-Delaware state line.

The authority has headquarters in Dover.

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