Municipal yields firmer ahead of $5 billion of supply; New York City Transitional on tap

By Sheri Kasprzak

New York, Dec. 5 - Municipals shrugged off some weakness in Treasuries on Monday with yields firming by as much as 5 basis points, said market insiders. Demand remains strong, said one trader, ahead of another major week for new issuance.

Fifteen-year yields were the most improved, seen down by almost 5 bps to close out the session at 3.058%. Thirty-year bonds were also firmer, by more than 4 bps, to end the day at 3.897%, and 20-year yields were down by 3 bps to close at 3.551%. Shorter maturities were relatively flat, said the trader.

"Demand is still very good, and everyone's looking at what's coming this week," the trader said.

"Investors are certainly looking for better quality, but I think that a lot of what's coming down the line is highly rated stuff."

As for how the market will absorb the coming supply, the trader said he feels that demand has been strong enough for the supply to be well-received.

"I really haven't seen any problems with the market being able to absorb supply," he added.

About $5 billion supply eyed

Tom Kozlik, municipal credit analyst with Janney Montgomery Scott LLC, said Monday that he expects about $5 billion in negotiated offerings for the week ahead.

Heading up the week's negotiated offerings is a $550 million offering of series 2012S-1A building aid revenue bonds (Aa3/AA-/AA-) from the New York City Transitional Finance Authority. The authority is also set to price $100 million of series 2012S-1B taxable qualified school construction bonds competitively. Both portions of the deal will price on Wednesday.

Ray Orlando, spokesman for the city's Office of Management and Budget, said the sale will include a two-day retail order period, which began Monday.

Morgan Stanley & Co. LLC will lead the syndicate of underwriters selling the $550 million portion of the bonds, Orlando said.

Proceeds from the deal will be used to complete capital projects within the city, as well as construct qualified schools.

New Jersey TRANs deal set

The largest offering of the week is a competitive sale out of the State of New Jersey. The state plans to price $2.15 billion of series 2012C tax and revenue anticipation notes (/SP-1+/F1+) on Tuesday.

The 2% notes are due June 21, 2012, and proceeds from the deal will be used to fund cash flow management for revenues and expenditures of the general fund and the property tax relief fund during the 2012 fiscal year.

The state most recently brought short-term notes in October. The state sold $1.1 billion of 0.57% variable-rate TRANS priced at par. Those notes are also due on June 21, 2012.

In September 2010, the state brought $2.05 billion of series 2011A TRANs. The notes matured on June 23, 2011 and had a 2% coupon priced at 101.325.

Iowa to fund water projects

Another sale expected during the week comes from the Iowa Financing Authority, which is set to price $181.4 million of series 2011 state revolving fund revenue bonds on Wednesday, according to a new issue calendar.

The authority intends to use the proceeds from the deal to provide loans to cities and communities for water quality improvement projects.

"There are currently structural issues with the existing sewer mains," said Saint Ansgar city clerk Diane Collier in a statement provided by the authority.

"The state revolving fund loan will allow us to be proactive in moving this vital project forward to ensure a sound water infrastructure system for Saint Ansgar residents."

Saint Ansgar and Meriden are among the communities that will receive the loans. Meriden city clerk Robert Morse noted in the authority's statement that the loan will provide his city with an affordable way to improve water quality.

"The state revolving fund loan is the most affordable method for financing our water quality initiatives," Morse said.

J.P. Morgan Securities LLC will act as the senior manager for the bonds (Aaa//AAA).

Proceeds from the deal will be used to fund construction project loans to cities and communities for water quality improvements.

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