Municipals kick off 2012 on weaker note; volume for week is expected to be $1.3 billion

By Sheri Kasprzak

New York, Jan. 3 - The new year in municipals got off to a rocky start, with yields jumping by nearly 30 basis points in spots, market insiders said. Stocks staged a rally and municipals took a hit, performing even worse than Treasuries.

"It was tough going," one trader said.

"Stocks are stronger. We haven't had a lot of supply. There are a lot of factors shoving us down. We'll see what happens as some of the supply comes in."

Twenty-year yields were seen up by 28 bps, and 30-year yields were up nearly 27 bps. Even the short end of the yield curve was weaker, with two-year yields seen up about 25 bps and seven-year yields up 22 bps.

Treasuries were weaker as well. Thirty-year Treasury yields were up nearly 10 bps, and 10-year yields were up nearly 8 bps.

The new year may have started tough, but municipals actually performed well in 2011, said Alan Schankel.

"With supply and demand dynamics looking strong, yields finished the year on a strong note," Schankel wrote in a note Tuesday.

"The 10-year AAA benchmark closed Friday at 1.83%, the lowest level of the year, well below the 3.21% start to 2011, generating [a municipals-to-Treasuries] ratio of 97.5%.

"We will not see the impressive double-digit total return numbers of 2011 in the coming year, but returns should remain in positive territory given our expectation for only slightly rising interest rates in 2012."

Volume 32% below 2010 levels

Meanwhile, Schankel reported Tuesday that 2011's new-issue volume closed the year at $295 billion, about 32% below 2010's total.

"Although we expect full-year 2012 totals to be in the $340 billion range, the first week of the New Year will provide only a minimal contribution, with less than $1.3 billion scheduled for sale thus far and the 30-day visible supply barely topping $4 billion," Schankel wrote.

"At this time last year, that same number was closer to $8 billion, despite the fact that the muni markets were still being roiled by Meredith Whitney's infamous predictions."

Illinois prepares big deal

It was no surprise to one sellsider that the State of Illinois will offer up one of the first major offerings of the year.

"I have no doubt that it will draw some significant interest," said the sellsider.

"Illinois bonds do offer up big returns. They're good for investors with a degree of risk tolerance."

The state is scheduled to bring $800 million of series 2012 general obligation bonds in two tranches on Jan. 11 via competitive bid.

The sale includes $525 million of series 2012A G.O. bonds and $275 million of series 2012B taxable G.O. bonds.

The bonds are due 2013 to 2037.

Proceeds will be used to fund the state's transportation, school, state facilities and other capital projects.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.