Municipal yields improve slightly, shake off weaker Treasuries; Mesa brings utility bonds

By Sheri Kasprzak

New York, May 9 - Municipal yields were somewhat better on Wednesday as new issues continued to meet eager investors, market insiders reported.

Despite some weakness that crept into the Treasury market during the afternoon, municipals retained strength, in no small part to investor interest in the day's healthy primary action, said traders.

"It was a very busy session, but bids are definitely strong," said one trader.

Yields were seen firmer by 1 to 3 basis points across the curve, according to the trader.

"Things backed off this afternoon with Treasuries, but I think demand has been so strong that we were able to shake that off and come back stronger this afternoon," said the trader.

Massachusetts gets strong bid

In primary news, market sources said the week's largest competitive deal - a $419.26 million offering of series 2012A commonwealth transportation fund revenue bonds from the Commonwealth of Massachusetts - was well received by investors.

The bonds (Aaa/AAA/) priced Tuesday with J.P. Morgan Securities LLC winning the bid.

The bonds are due 2013 to 2036 with term bonds due in 2040 and 2041. The serial coupons range from 2% to 5%. The 2040 bonds have a 3.75% coupon priced at 100.379. The 2041 bonds have a 4% coupon priced at 102.286.

"The week's largest competitive issue, $420 million Massachusetts transportation, received a strong reception, particularly on maturities out to 10 years, with yields pretty much on top of AAA benchmarks," said Alan Schankel, managing director with Janney Montgomery Scott LLC, in a report released Wednesday.

"Maturities past 10 years, with lower coupon structures (4% versus 5% through 2025), were priced at a wider concession to the benchmark."

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

Mesa prices revenue bonds

During the busy session, the City of Mesa, Ariz., sold $67.3 million of series 2012 utility systems revenue bonds, said a term sheet.

The bonds (Aa2/AA-/) were sold competitively. Kevin Christopher, spokesman for the city, said Wednesday afternoon that the city council has not yet released the winning bidder. That information will be available Thursday, Christopher said.

"The city sells its debt competitively, and it's based on market conditions and takes all factors into consideration," Christopher said Wednesday in an interview.

The bonds are due July 1, 2036, and bear interest at 4% priced at 100.754.

Proceeds will be used to construct and acquire improvements to the city's utility systems.

Equities boost public pensions

Elsewhere in market news, public pension plans could be benefiting from improved equities, said Schankel on Wednesday.

Even so, new rules could put a damper on those gains, which totaled about 7.5% for the first quarter. The Government Accounting Standards Board is expected to change rules regarding the rate used to estimate future investment returns, according to Schankel.

"Many plans assume that existing assets will produce annual returns of around 8%, an unrealistic assumption, particularly in recent years," Schankel wrote.

"The new rules will require use of a lower, more realistic return rate."

© 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.