Municipals seen unchanged to slightly better; only $2 billion scheduled ahead of Labor Day

By Sheri Kasprzak

New York, Aug. 24 - Municipals were slightly firmer to close out the week as supply tapered off substantially, but issuance will fall off even more in the week ahead of Labor Day, with just $2 billion in new deals scheduled.

Yields were flat to 1 basis point to 2 bps stronger, traders reported, as munis got a boost from improved Treasuries.

"Trading is actually pretty active today," one trader pointed out.

"It's interesting that we're seeing a pretty active Friday, especially in the summer, but we're seeing decent volume [in secondary]. Dealers are likely expecting a dry spell coming up."

That dry spell begins next week, said Alan Schankel, managing director with Janney Montgomery Scott LLC.

Limited supply ahead

"With fewer than $2 billion issuance scheduled for next week, the muni market is heading for a few slow pre-holiday days, but investor demand for tax-free bonds continues unabated if the ICI fund flow numbers are an indication," Schankel wrote Friday.

"In the week ending Aug. 15, municipal bond mutual funds added nearly $1.6 billion to assets, bringing the 2012 total to $37 billion. After losing $45 billion following the selloff which began in late 2010, muni funds have recovered the lost assets and continue to bring in new dollars."

Schankel noted that Thursday was a strong session for munis, but municipals-to-Treasuries ratios moved higher in the past two days.

Turnpike bonds move lower

Meanwhile, the largest offering of the week received enough orders to allow yields to move 3 bps to 8 bps lower, Schankel said.

The New Jersey Turnpike Authority sold $809.95 million of series 2012B turnpike revenue bonds on Thursday.

The bonds (A2/A+/A) are due 2019 to 2030 with 3.5% to 5% coupons.

"Market strength was illustrated by strong demand for yesterday's $809 million New Jersey Turnpike issue, which received enough orders to allow yields to move 3 to 8 basis points lower, with the longest 2030 maturity finishing at 3.5% to yield 3.62%," Schankel wrote Friday.

The bonds were sold through lead managers Citigroup Global Markets Inc. and Goldman Sachs & Co.

Proceeds will be used to refund the authority's series 1991C-D, 2003A and 2009C-E revenue bonds.

Mayo Clinic deal ahead

One of the larger deals coming up will be from the Mayo Clinic of Rochester, Minn. The clinic is set to come to market with $300 million of series 2012B taxable bonds (Aa2/AA/).

The bonds will be sold through Bank of America Merrill Lynch and Wells Fargo Securities LLC and are due Nov. 15, 2043.

Proceeds will be used for eligible corporate purposes.

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