'Supply hangover' forces yields up as Treasuries keep struggling; $5 billion of issuance ahead

By Sheri Kasprzak

New York, Jan. 25 - Municipal yields were largely weaker on Friday along with Treasuries as the market struggled to digest the week's new-issue supply, traders reported.

Yields were off by 3 basis points to 5 bps across the curve in the afternoon, said one trader.

"There's a supply hangover," he said.

"We seem to be having some distribution problems, and there are some significant balances on some deals [priced during the week]."

Meanwhile, the week ahead will provide a little less supply, but it remains robust, said Alan Schankel, managing director with Janney Montgomery Scott LLC.

"New-issue supply was strong and, for the most part, well-received this week, and next week's slate, at about $5 billion, is not onerous, especially in the context of more than $5 billion of new money flowing into municipal mutual funds so far in January," Schankel said Friday.

Illinois preps $500 million

Heading up the week's muni offerings, the State of Illinois plans to hit the market with a $500 million competitive offering of series of February 2013 general obligation bonds on Wednesday.

This marks the first time the state has hit the market so far this year. The state most recently sold debt in September. Illinois then sold $50 million of G.O. bonds. The bonds are due 2013 to 2022 with 3% to 4% coupons.

The new issue will be used to finance school and transportation projects as well as other state capital projects.

North Carolina to sell G.O.s

In other competitive offerings, the State of North Carolina will come to market on Wednesday with $325,555,000 of series 2013B G.O. refunding bonds (Aaa/AAA/AAA).

Those bonds will be used to refund the state's series 2003A-B G.O. public improvement bonds, series 2003 G.O. highway bonds, series 2004A G.O. public improvement bonds, series 2004 G.O. highway bonds, series 2005A G.O. public improvement bonds, series 2006A G.O. public improvement bonds and series 2007A G.O. public improvement bonds.

The state most recently came to market Jan. 17 with $250 million of limited obligation bonds. Those bonds are due 2014 to 2033 with 2.25% to 5% coupons.

Proceeds from the earlier offering will be used to finance state capital needs.

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