Municipals finish firmer; 30-year municipal-to-Treasury ratio reaches lowest point since June

By Sheri Kasprzak

New York, Jan. 17 - Municipals closed the day firmer again, market sources reported.

With little supply to push the market and secondary action tapered, munis followed Treasury prices higher. Muni yields were lower by 1 basis point to 3 bps, traders said.

On Thursday, 30-year benchmark AAA tax-free bonds fell by 6 bps to close at 3.93%, equal to 104.2% of the 3.77% 30-year Treasury yield, the lowest municipal-to-Treasury ratio since before the June crunch, said Guy LeBas, chief fixed income strategist with Janney Montgomery Scott LLC.

"The yield curve slope is also receding as the 10- to 30-year spread has narrowed to 132 bps from the recent high point of 162 bps in October," LeBas wrote Friday.

"Rising rate fears have receded as data, such as last week's employment report, continue to signal only moderate economic strength and minimal inflationary pressure.

"Another sign of changing investor sentiment is [seen] in fund flows. Lipper reports that municipal mutual funds ended a 33-week run of outflows with inflows of $103 million in the week ending Jan. 15."

Washington leads offerings

Looking to the coming week's new issues, the State of Washington will lead the pack with $717.1 million of series 2014 general obligation bonds in three tranches.

The state will sell the G.O. bonds (Aa1/AA+/AA+) competitively on Wednesday.

The deal includes $355,075,000 of series 2014D various-purpose G.O. bonds, $273,915,000 of series 2014E motor vehicle fuel tax G.O. bonds and $88.11 million of series 2014T-2 taxable G.O. bonds.

Proceeds will be used to finance state capital projects and state highway projects.

Fairfax deal ahead

Coming up on Thursday, Fairfax County, Va., is scheduled to price $316,815,000 of series 2014A public improvement and refunding bonds competitively.

The bonds (Aaa/AAA/AAA) are due 2014 to 2033.

Proceeds will be used to finance school, transportation, public facilities, parks and recreation and public library improvements and to refund the county's series 2004A-B and 2005A revenue bonds.

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