Municipals close weaker along with Treasuries; M/T ratios indicate munis offer value, RBC says

By Sheri Kasprzak

New York, Nov. 5 - The municipals market closed a touch softer on Tuesday following along with Treasuries, insiders said.

New issues were cheapened to move, some sources said, and continued selling pressure shoved yields up across the curve with yields weaker by 2 basis points to 3 bps.

Treasuries weakened following the release of ISM non-manufacturing data. The 10-year Treasury note yield rose by 5.5 bps to close at 2.66%, and the 30-year bond yield was also up 5.5 bps at 3.753%. The five-year note yield closed higher by 2 bps at 1.38%.

New Jersey bonds price

Heading up the day's primary action, the New Jersey Economic Development Authority hit the market with $456,845,000 of series 2013 tax-exempt private activity bonds.

The bonds were sold through BofA Merrill Lynch and Barclays.

The bonds are due 2020 to 2028 with term bonds due in 2031, 2034, 2039, 2042, 2043 and 2052, said a pricing sheet.

The serial coupons range from 5% to 5.5% with 3.20% to 5.00% yields.

The 2031 bonds have a 5% coupon and priced at 99.424 to yield 5.05%. The 2034 bonds have a 5.125% coupon and priced at 97.239 to yield 5.35%. The 2039 bonds have a 5.125% coupon and priced at 97.985 to yield 5.27%. The 2042 bonds have a 5.125% coupon and priced at 97.142 to yield 5.32%. The 2043 bonds have a 5.375% coupon and priced at 97.057 to yield 5.58%. The 2052 bonds have a 5.625% coupon and priced at 96.571 to yield 5.85%.

Proceeds will be used to finance improvements and replacements for the Goethals Bridge.

'Keep calm and carry on'

RBC Wealth Management released a report Tuesday noting that there are signs of renewed interest and stability in the municipals market and that this interest is justified by current municipals-to-Treasuries ratios.

"Our view hasn't changed - current muni/Treasury ratios indicate munis continue to offer some of the best value in the credit sector, especially for investors in high tax brackets," wrote the analysts with RBC's U.S. fixed-income strategies group.

"Market conditions are, however, likely to remain volatile until mutual fund selling pressures abate, so we believe investors need to be selective with the timing and extent of their purchases, but most importantly, remember to keep calm and carry on."

Puerto Rico stable as well

Despite some of its economic issues, the Commonwealth of Puerto Rico is showing some signs of stability and improvement, according to the RBC analysts.

"Investors' fears were calmed as a result of a mid-month investor call where Puerto Rico officials told investors that bankruptcy by its issuers was out of the question," the RBC report said.

"Trading in Puerto Rico debt rallied, and various commonwealth debt issues ended the month trading better by as much as 15 basis points."

The commonwealth released a five-year plan to create a more diversified, knowledge-based economy. The plan focuses on pursuing opportunities in life sciences, knowledge services, tourism, small and medium enterprises and agriculture.

S&P muni index up 0.92%

The S&P National AMT-Free Municipal Bond index finished October up 0.92%, said a report from S&P Dow Jones Indices.

"Year-to-date, this index is down 2.06%, representing the culmination of news within the past few months regarding Detroit, Puerto Rico and the arbitration results for those states that have issued tobacco settlement bonds," wrote J.R. Rieger, vice president of fixed-income indexes.

High-yield municipals, measured by the S&P High Yield Municipal Bond index, returned 0.91% for October but are down 3.51% for the year through October.

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