Municipals end slightly weaker; California Public Works Board to sell $981.6 million bonds

By Sheri Kasprzak

New York, March 19 - Municipals closed out Monday weaker for the fifth straight session, traders reported, as Treasuries weakened and the market anticipates nearly $9 billion in new issuance in the week ahead.

"We're still struggling with demand and supply," said one trader reached during the session.

"Treasuries were off today as well; in fact, we outperformed Treasuries. But looking at what's coming up this week, I'm worried that we will have some supply pressure to contend with."

Despite anticipated volume of between $8 billion and $9 billion, Tom Kozlik, municipal credit analyst with Janney Montgomery Scott LLC, said Monday that some refundings could be delayed.

"Primary market volume is expected to be between $8 billion and $9 billion this week, though some refundings might be put on hold as a result of the sharp upward movement of yields," he wrote in a report.

California Public Works ahead

Leading the week's new-issue action is a $981.6 million offering from the California Public Works Board. The capital projects lease revenue bonds (A2/BBB+/BBB+) could draw in demand from investors eager for California paper, despite the recent lack of demand.

"I think people will come out for this one," said one sellsider asked about the impact of the offering on the market.

"There has been a substantial lack of California bonds out there in the past year or more. There's definitely a portion of the market that really does seek out California deals."

The bonds will be sold through Goldman Sachs & Co. on Thursday.

Proceeds from the sale will be used to finance capital projects throughout the state.

Moody's revises Ohio outlook

In ratings news, Moody's Investors Service revised the State of Ohio's outlook to stable from negative, Kozlik said Monday.

The ratings agency noted that the state had a record of strong financial management "proven through generally proactive responses to budget shortfalls, recent revenue growth and improved financial position, and the expectation that excess revenues will continue to be used to rebuild reserves in the near term."

The move comes just ahead of the state's planned $430.8 million sale of series 2012 G.O. bonds (Aa1/AA+/AA+).

The bonds will be sold in three tranches on Tuesday through J.P. Morgan Securities LLC.

The deal includes $300 million of series 2012A higher education G.O. bonds, $91.2 million of series 2012B higher education G.O. refunding bonds and $39.6 million of series 2012B infrastructure improvement G.O. refunding bonds.

The state intends to use the proceeds from the deal to finance capital improvements to state-supported and state-assisted higher education institutions, as well as refund outstanding bonds for a net present value savings.

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