Munis drop 10 bps in closing days of 2012; $373 billion priced in 2012, up 30% over 2011

By Sheri Kasprzak

New York, Jan. 2 - Muni yields were little changed to kick off the New Year, despite a Treasury sell-off, market insiders said.

Secondary action remained very light, said one trader, with yields seen possibly a touch firmer in spots.

"We don't seem to be moving in sympathy with Treasuries at all today," he noted.

"We're mostly in a holding pattern. Not a lot of activity to really move us. Primary is going to be extremely light for what's left of the week, and with trading light, we're at a standstill."

Municipals closed out 2012 on a firmer note, with the 10-year triple-A benchmark yield closing at 1.72%, a drop of 10 basis points for the closing sessions of 2012, said market insiders.

"It is notable that although new-issue volume in 2012 finished at $373 billion, 30% higher than the $287 billion of 2011, the totals were skewed by refundings," said Alan Schankel, managing director with Janney Montgomery Scott LLC.

New money bonds totaled about $143 billion, or $3 billion lower than in 2011, Schankel noted.

"This result indicates that borrowing for new projects remains flat, with net issuance of municipal bonds continuing to fall, confirmed by Federal Reserve numbers, which show declines in the amount of outstanding municipal bonds over the past year or so," Schankel said.

Munis survive cliff talks

After tense negotiations in Congress to avoid the fiscal cliff, municipals retained their tax-exempt status - at least for now, said Schankel.

"In fact, with the top tax bracket reverting to the Clinton-era 39.6% rate, municipal tax exemption becomes more valuable," said Schankel.

"The next act of D.C. negotiations, however, is yet to be written. With the debt ceiling limit approaching in February, the negotiating fun begins anew, and in the context of further revenue increases and/or tax reform, we expect the reduction or elimination of tax exemption to be a continued topic of discussion."

Ohio, Hampton Roads deals set

Meanwhile, the calendar for the week of Jan. 7 is already stacking up, led by a $219.28 million offering from the State of Ohio. The state is set to price general obligation bonds competitively on Tuesday.

The offering includes $150 million of series 2013A G.O. bonds and $69,275,000 of series 2013B G.O. refunding bonds.

Proceeds from the deal will be used to finance capital improvements throughout the state and to refund existing G.O. debt.

On Thursday, the Hampton Roads Sanitation District of Virginia is slated to price $215.22 million of series 2013 wastewater revenue and refunding bonds (Aa2/AAA/AA+) through Raymond James/Morgan Keegan.

The proceeds from that deal will finance capital wastewater projects and refund existing wastewater revenue debt.

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