Supply pressure continues to pinch municipal yields; New York Thruway brings $780.5 million

By Sheri Kasprzak

New York, March 15 - Municipals spent another session in the gutter, muni insiders reported, as a drop in demand and continued healthy supply pressured yields.

"It's almost like that wonderful supply/demand balance we had a couple of weeks ago has all but vanished," one trader said.

"We had a good, solid stream of new issues, and absorption was nearly immediate. Now, the demand isn't as great, but we still have this huge supply. It's starting to put pressure on yields, so that's why we've had this streak over the past several days."

Yields were seen up 4 basis points to 8 bps across the curve on Thursday, said one trader.

In the broader market, the amount of outstanding municipal bonds fell to $3.74 trillion at the end of 2011 from $3.79 trillion at the end of 2010, said Tom Kozlik, municipal credit analyst with Janney Montgomery Scott LLC, quoting figures from the Federal Reserve.

"This is a trend we expect to continue in 2012 as refundings make up almost 50% of new issuance," Kozlik said.

New York Thruway bonds price

Leading primary action, the New York State Thruway Authority came to market with $780,495,000 of series 2012A second general highway and bridge trust fund bonds, said a pricing sheet.

The bonds (/AA/AA) were sold through Bank of America Merrill Lynch and Loop Capital Markets LLC.

The bonds are due 2013 to 2032 with 2.5% to 5% coupons.

"From what I've seen, interest was pretty good," said one sellside source asked about the sale.

"Given that these aren't the best conditions, I'd say it went well today. They have the advantage of a good rating, basically New York State's rating, and I think that makes a difference."

The size of the authority, the sellsider said, also helps it achieve decent pricing and plenty of interest from a wide variety of investors.

"There were both," he said when asked about whether retail or institutional went after the offering.

Proceeds will be used to reimburse the state for some transportation projects and to refund the authority's series 2002C and 2003A-B bonds.

Limits to be put on 'NRO'

Elsewhere, the Municipal Securities Rulemaking Board has proposed a rule change that could make it more difficult for broker-dealers to use the term "not reoffered" or "NRO," said Kozlik.

"When an underwriter issues muni new bonds with a 'NRO' for certain maturities, they're choosing not to disclose the new issue price, at least not until official final deal documents are published," Kozlik said.

"The MSRB's goal is to improve market transparency about new issue and yield information."

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