Top-rated muni yields continue to rise as market grapples with glut; Massachusetts sells deal

By Sheri Kasprzak

New York, April 30 – Triple-A rated municipals were weaker again Thursday as the market handled a glut of inventory after a few weeks of $10 billion-plus supply, traders said.

Yields on some maturities were seen higher by about 5 basis points, said one trader in the afternoon.

A recent influx of new issues, led by a huge round of refundings, has left some dealers with a large inventory.

“The market is having trouble digesting right now,” one trader said.

“We were hit with so many refundings over the past few weeks, it’s just taking a while to absorb everything.”

Munis have dealt with weakness over the past week, and even a shift in the Treasuries market couldn’t help Thursday.

Massachusetts brings bonds

Heading the day’s primary activity, Massachusetts hit the market with $550 million of series 2015 consolidated loan general obligation bonds, the largest offering of the week.

The deal included $100 million of series 2015A bonds and $450 million of series 2015B bonds.

The 2015A bonds are due 2019 to 2025 with 4% to 5% coupons and 1.19% to 2.37% yields.

The 2015B bonds are due 3.5% to 4% coupons and 3.53% to 3.75% yields.

The bonds (Aa1/AA+/AA+) were sold competitively. J.P. Morgan Securities LLC won the bid for the 2015A bonds at a 2.169% true interest cost, and BofA Merrill Lynch took the 2015B bonds at a 3.901% TIC. The high bid for the 2015A bonds was 2.28%, and the high bid for the 2015B bonds was 4.081%.

There were 10 bidders for the 2015A bonds and eight for the 2015B bonds.

Proceeds will be used to finance capital expenditures for the commonwealth.

Fitch: Spending manageable

Elsewhere in the market, Fitch Ratings said Thursday that U.S. public finance was solidly positioned at the close of the first quarter.

“For states, budget challenges are manageable in an environment of continued economic and revenue growth,” Laura Porter, Fitch managing director, said in a statement.

“Risks related to the federal government are now longer term.”

For local governments, property taxes are stabilizing and spending is under control, according to managing director Richard Raphael and Porter.

Risks for the rest of the year include post-employment benefit costs, the uncertainty of health-care reform and reimbursement changes on hospitals, potential environmental regulation changes on utilities over the medium term and affordability and demand pressures for higher education.

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