Municipals close out week unchanged ahead of larger supply; defaults on the rise, says S&P

By Sheri Kasprzak

New York, Aug. 17 - Municipals ended a rather rough week on a quiet note on word that new-issue supply in the week ahead will likely outpace that in the week just ended, said market sources reached in the afternoon.

"Not much to report today. Things were pretty slow, and there wasn't much movement overall," said a trader reached Friday afternoon.

"I think everyone is looking to what's coming up next week. My understanding is that we'll have more supply."

Meanwhile, a total of $35 billion has flowed into municipal market mutual funds so far in 2012, said Tom Kozlik, municipal credit analyst with Janney Montgomery Scott LLC.

"We rely on flows into or out of municipal mutual funds as a gauge of retail investor demand or comfort with the asset class," said Kozlik.

"In 2012, retail investors' attitudes toward municipals have been very positive as far as flows are concerned. Flows were strongly negative at the end of 2010 and into the summer of 2011, partly negative as a result of credit worries stemming from Meredith Whitney's prediction, but there has only been a single week of outflows in all of 2012, and that was right before tax time - typical for the sector. For this most recent week, Investment Company Institute data shows that weekly inflows hit a three-month high of $1.4 billion. Flows last week were $1.1 billion."

Muni defaults total $8 billion

Municipal bond defaults are on the rise, said J.R. Rieger, vice president of fixed-income indexes with Standard & Poor's.

"As of July 31, 2012, the S&P Municipal Bond Index has seen an increase in outstanding defaulted bonds, which now total over $8 billion in par value, or 0.59% of the index," Rieger wrote Friday.

"On December 31, 2011, that total was $6.6 billion in par value, or 0.5% of the index."

Rieger noted that most of the bonds in monetary default are non-rated deals that originated from four sectors: multi-family, health-care, land-backed and corporate-backed municipal bonds.

New York Thruway deal set

Heading up the offerings for the week ahead, the New York State Thruway Authority is prepared to price $480,165,000 of series 2012A state personal income tax revenue bonds through J.P. Morgan Securities LLC and M.R. Beal & Co. LLC.

The bonds are due 2013 to 2032.

Proceeds from the sale will be used to make grants to reimburse local municipalities for highway, bridge and multimodal projects and to fund Metropolitan Transportation Authority projects.

The authority last came to market in March with $780.5 million of second general highway and bridge trust fund bonds. The coupons ranged from 2.5% to 5%, and the yields ranged from 0.169% to 3.5%.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.