Munis close mixed following some volatility in Treasuries; California Public Works sells debt

By Sheri Kasprzak

New York, Nov. 22 - Although municipals started out the session strong with solid secondary market action and some decent primary activity, instability in the Treasuries market left municipals mixed by the end of Tuesday, said market insiders.

"Secondary is really pretty good," said one trader of volume.

"We had so much new supply last week that a lot of that is moving this week. Most of it has been trading pretty strong."

Even though Treasuries ended on a firmer note, some parts of the municipal curve couldn't recover from the instability Treasuries saw earlier in the day. Twenty-year yields were down more than 2 basis points. Ten-year yields, however, were up more than 2 bps. Yields elsewhere were only slightly softer, said the trader.

Meanwhile, the State of Rhode Island's pension reform legislation signed last week has been treated positively by Moody's Investors Service and Fitch Ratings.

"Based on enacted changes, the state's unfunded liability fell from $4.4 billion to $2.7 billion, and while challenges remain from the state's employee groups, from a financial strength perspective, Rhode Island is stronger today than it was a week ago," Alan Schankel, managing director with Janney Montgomery Scott LLC, wrote in a report released Tuesday.

The move cut the state's pension liability by 41% and increased the funding level for its defined benefit plan to 59.8% from 48.4%.

"The law forces public workers to split their retirement funds between a guaranteed pension and a 401(k)-style plan whose value is tied to the strength of investments, a hybrid plan that, according to the Pew Center on the States, would be the first such plan in the nation to affect current employees," James Klotz, president of FMS Bonds, Inc., wrote in a report.

Fitch wrote Tuesday that the sweeping nature of the legislation may inspire similar plans from other states dealing with unfunded pension obligations.

California Public Works prices

The largest sale planned for the short week priced Tuesday. The California Public Works Board brought $295.2 million of series 2011 lease revenue bonds, said a pricing sheet.

The bonds (Aa2/AA-/AA) were sold through RBC Capital Markets LLC.

The bonds are due 2015 to 2031 with 2% to 5.25% coupons.

Proceeds will be used to fund various capital projects at the University of California's Berkeley, Los Angeles and Merced campuses and to make a contribution to a master indenture reserve fund.

Allegheny County price

Elsewhere on Tuesday, the Allegheny County Hospital Development Authority brought to market $101.205 million of series 2011A hospital revenue bonds for the University of Pittsburgh Medical Center, said a pricing sheet.

The bonds (Aa3/A+/AA-) were sold through RBC Capital Markets.

The bonds are due 2012 to 2026 with a term bond due in 2031. The serial coupons range from 2% to 5%. The 2031 bonds have a 5% coupon and priced at 102.188.

Proceeds will be used to fund ongoing capital needs for fiscal year 2012, to finance a line of credit draw used by the medical center to pay a portion of a Sept. 1, 2011, bullet principal payment associated with its series 2008A bonds issue and to refund the medical center's series 1999A bonds.

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