Muni yields weaken along with Treasuries; MTA bonds price with yields cut from initial pricing

By Sheri Kasprzak

New York, Jan. 17 - Municipal yields were slightly cheaper on Thursday as Treasuries weakened, market sources reported.

Yields were off by about 1 basis point to 2 bps along the yield curve, one trader said in the early afternoon.

"The only thing I'm seeing today is weaker Treasuries," he said.

"There's not a lot of selling pressure, at least not enough to impact yields. Treasuries are off, and I think we're off along with them."

Despite Thursday's slight dip, muni yields have been largely positive throughout the week, with yields dropping for eight straight sessions before the bump.

Flows to muni mutual funds have also been positive so far this year.

"After stumbling into negative territory in the cliff-constrained final weeks of 2012, flows to muni mutual funds turned strongly positive in 2013, with $2.45 billion of assets migrating to funds in the week ending Jan. 9," said Alan Schankel, managing director with Janney Montgomery Scott LLC.

Most of the U.S. public finance sector should be stable now that the fiscal cliff has been temporarily averted, said Rich Raphael, managing director of Fitch Ratings' U.S. public finance group.

"Fitch anticipates that the majority of rating actions in 2013 will be affirmations," Raphael said Thursday.

"The last-minute resolution of the fiscal cliff lessens concerns about the U.S. economy falling into the recession and removes the economic risk of a large-scale federal personal income tax increase. But fiscal, economic and regulatory uncertainties continue to be an immediate threat to the 2013 public finance outlooks."

MTA brings $500 million

During the day's pricing action, the Metropolitan Transportation Authority of New York came to market with $500 million of series 2013A transportation revenue bonds, said a pricing sheet.

The bonds (A2) were sold through Citigroup Global Markets Inc. and M.R. Beal & Co.

The bonds are due 2013 to 2033 with term bonds due in 2038 and 2043. The serial coupons range from 2% to 5%. The 2038 bonds have a 5% coupon and priced at 115.125. The 2043 bonds have a 5% coupon and priced at 114.559.

Yields moved lower on the bonds following a retail order period, said Schankel.

The bonds were evidence of solid tax-free demand, Schankel said Thursday, with the 10-year maturity adjusted two steps from 2.41% to 2.32%. The 30-year bond ended at 3.32%, 7 bps below initial pricing.

"N.Y. Metropolitan Transportation priced $500 million to a retail order period with the issue structure primarily as 5% coupons," Schankel said on Wednesday when the retail order period was conducted.

"The highest-yielding bonds in 30 years carried a preliminary yield of 3.39%, while the 10-year yield was 2.27%."

Proceeds will be used to finance transit and commuter projects.

North Carolina sells debt

In other primary action, the State of North Carolina priced $250 million of series 2013A limited obligation bonds, said a pricing sheet.

The bonds (Aa1/AA+/AA+) were sold competitively with Bank of America Merrill Lynch winning the bid with a 2.5024% true interest cost, said Walton Robinson, press secretary for the North Carolina treasurer's office.

"It is the state's normal practice to sell such bonds on a competitive basis," Robinson said in an interview.

The bonds are due 2014 to 2033 with 2.25% to 5% coupons.

Proceeds will be used to finance state capital needs.

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