Municipals weaken as supply puts pressure on yields; New York City Water sells $520.5 million

By Sheri Kasprzak

New York, March 6 - Municipals were seen off after a new wave of supply hit the market, putting pressure on yields, said trader reached during the session.

"Demand is good, but it's looking like there's so much coming this week that yields are starting to feel the pressure," said one trader.

Yields were higher by about a basis point in most maturities, said the trader, with some slight firmness seen at about 15 years.

With almost $9 billion coming down the pipeline this week, it's no wonder yields were feeling the strain.

"Much of the volume, led by a $1.5 billion Puerto Rico [general obligation] refunding issue, will be generated by current refundings, with proceeds used to call bonds within 90 days," said Alan Schankel, managing director with Janney Montgomery Scott LLC.

"There are and will be plenty of redemptions to generate funds for new issues, so the supply increase seems very manageable."

New York water deal prices

Heading up the day's primary action, the New York City Municipal Water Finance Authority brought to market $520,525,000 of series 2012EE water and sewer system second general resolution revenue bonds, said a pricing sheet. The offering was upsized from $500 million.

The bonds (Aa2/AA+/AA+) were sold through M.R. Beal & Co.

The bonds are due 2019 to 2031 with term bonds due in 2034, 2039 and 2045. The serial coupons range from 3% to 5.25%. The 2034 bonds have a split maturity with a 3.375% and a 5% coupon. The 2039 bonds have a 4% coupon and the 2045 bonds have a 4% coupon.

One market insider was not surprised the deal was upsized.

"There has been a great deal of demand recently, especially for high-grade issuers," said the source.

"It's actually pretty common for the [authority's bonds] to upsize."

Proceeds will be used to make a deposit to the authority's construction fund and repay existing commercial paper notes.

Puerto Rico to finalize deal

The week's largest offering is set to price on Wednesday. The Commonwealth of Puerto Rico held a two-day retail order period for $1.9 billion of general obligation public-improvement refunding bonds through Barclays Capital Inc. and J.P. Morgan Securities LLC.

The commonwealth will open the offering up to institutions on Wednesday.

Proceeds from the deal, which will be conducted in two tranches, will be used to repay Government Development Bank lines of credit and refund existing debt.

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