Yields close week flat to softer; S&P tallies eight defaults on muni bonds so far this year

By Sheri Kasprzak

New York, March 4 - Municipal yields were yet again slightly weaker to round out the week as supply pressure mounted, market insiders reported.

"Flat for the most part," one trader said during the afternoon. "Out long, maybe off a touch, a basis point or so."

Another trader noted that pressure on yields is beginning to increase as the week ahead will provide a steady stream of new offerings after months of famine.

"There's been very little pressure lately, so now that some stuff is coming down the pipeline, it's [pressure] increasing," he said.

"We're not off by a lot, but compared to the past few weeks, we're feeling weaker."

Meanwhile, J.R. Rieger, vice president of fixed-income indexes at Standard & Poor's, said Friday that so far this year, eight municipal bond deals have entered monetary default for a total of $222 million in par value.

"Compare this to the same period last year where there were 16 municipal bond deals entering monetary default totaling over $329 million in par value," he said.

The bonds that have been defaulted upon as of the end of February include one industrial development or corporate-backed bond, one multifamily bond, one civic center bond, one general obligation bond, one tax and revenue bond, one toll road bond and two land-backed bonds, Rieger said.

Seasonal pressures too

In addition to supply pressures, municipals face some seasonal pressures as well, said Alan Schankel, managing director with Janney Montgomery Scott LLC.

"According to MMA, only five of the last 21 Marches have seen positive price performance by munis, and only twice have those gains exceeded 1%," Schankel said.

"The 30-year MMA benchmark finished above 5% again, rising 3 bps to 5.01%. The 10-year closed 2 bps higher at 3.3% [on Thursday]."

Georgia, Puerto Rico ahead

In addition to major offerings in the coming week from the City of New York and the State of Maryland, the Georgia State Road and Tollway Authority will hit the market with $355.135 million of series 2011 revenue refunding bonds on Wednesday.

The bonds (//AAA) will be sold competitively.

The offering is comprised of $203.46 million of series 2011A bonds and $151.675 million of series 2011B bonds.

The 2011A bonds are due 2013 to 2021, and the 2011B bonds are due 2015 to 2022.

Proceeds will be used to refund the authority's series 2003 bonds.

The Atlanta-based authority operates and maintains Georgia State Highway 400 in the metropolitan Atlanta area.

Also coming up on Wednesday, the Commonwealth of Puerto Rico will price $250 million of series 2011C public improvement refunding bonds (A3/BBB-/BBB+) through Morgan Stanley & Co. Inc. and Barclays Capital Inc.

Proceeds will be used to refund existing debt.

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