Municipal yields firm along with Treasuries; Chicago brings $594.85 million of G.O. bonds

By Sheri Kasprzak

New York, May 17 - Municipals rounded out a slower session Thursday on a firmer note thanks in part to firmer Treasuries, said market insiders.

"We're following along with Treasuries, but there hasn't been a lot going on," one trader said.

The trader noted that retail investors were absent again from the market for the most part but said demand remains strong.

"Most everything is getting absorbed, so demand is good, but retail has been ambivalent. If there's something remarkable, they'll bite," he said when asked about retail interest in the market.

Meanwhile, municipal-to-Treasury ratios leapt on Wednesday, said Alan Schankel, as munis backed off recent gains as investors turned away from record-low rates.

"Background noise from California's growing budget gap and a shortfall in projected tax revenue announced by New Jersey added to market fatigue, pushing the benchmark AAA yield on 10-year bonds 6 basis points higher to 1.8%," Schankel said.

"Since the like maturity Treasury yield actually dropped a basis point, the muni-to-Treasury ratio finished at 102%, the first reading above 100% since early March. Adding to the noise lowers an increase in 30-day visible supply, including a new issue calendar of $5.5 billion slated for next week, with two days remaining for listing of additional deals."

New York deal tops calendar

Heading up next week's $5.5 billion new-deal calendar is an $800 million offering of series 2012H-I general obligation bonds from the City of New York.

The bonds, which are due 2012 to 2032, will price through lead manager Bank of America Merrill Lynch.

The city intends to use the proceeds to redeem existing G.O. bonds.

Chicago brings G.O. bonds

During Thursday's primary action, the City of Chicago came to market with $594.85 million of series 2012 G.O. bonds, said a pricing sheet.

The deal included $179,905,000 of series 2012A bonds, $307,975,000 of series 2012B taxable bonds and $106.97 million of series 2012C refunding bonds.

The 2012A bonds are due 2033 to 2034 with 5% coupons. The 2012A bonds were not reoffered.

The 2012B bonds are due Jan. 1, 2042, bear interest at 5.432% and priced at par.

The 2012C bonds are due 2020 to 2026 with term bonds due in 2030, 2031 and 2032. The serial coupons range from 4% to 5%. The term bonds have 4% coupons. None of the term bonds were reoffered.

Mesirow Financial Inc. was the senior manager for the bonds (Aa3/A+/AA-).

Proceeds will be used to finance city improvements including lighting, street, right-of-way, alley and sidewalk improvements.

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