Municipal yields close firmer; Orange County saves $4.3 million through $58.53 million sale

By Sheri Kasprzak

New York, Jan. 6 - Municipal yields closed out the week on a firmer note after experiencing ups and downs throughout the week, said traders.

"Supply is a problem, but what is pricing is coming out very favorably," said one trader reached during the afternoon.

"[Volume] is light for the foreseeable future, but demand is still strong. That imbalance could pose a problem."

According to Alan Schankel, managing director with Janney Montgomery Scott LLC, demand is particularly strong on the long end of the yield curve. Municipals-to-Treasury ratios remain well over 100% in this portion of the curve.

"The M/T ratio in 10 years is 93.5%, the lowest in five months, but in 30 years, a 3.54% muni yield is 116% of the 3.06% Treasury yield," he said.

"Next week's new issue calendar is still relatively light at about $4 billion."

Twenty-year yields on Friday were down by 6.5 basis points, and 15-year yields were down more than 5 bps. Five- and seven-year yields were both down more than 3 bps.

Orange County schools saved $4.3 million

In recent activity, the Orange County School Board experienced a net present value savings of more than 7%, or $4.3 million, following its $58.53 million sale of series 2012A refunding certificates of participation, said the board's chief financial officer, Richard Collins, in an interview Friday.

The board sold the debt on Thursday through senior manager Citigroup Global Markets Inc.

The COPs (Aa3/AA-/AA) are due 2013 to 2019 with 5% coupons.

"Staff was hoping to achieve a net present value savings of 5%," Collins said.

"We were scheduled to issue in December, but the financing team was concerned whether we could achieve the targeted savings. We therefore rescheduled for the first week in January. With changes in market conditions in the first week of January, we quickly proceeded to consummate the sale. The results were very positive, with NPV savings in excess of 7%, or $4.3 million."

Proceeds from the offering will be used to refund the board's series 2001A COPs for a debt service savings.

"We believe the recent rating upgrade by Fitch Ratings, as well as the decision to wait until the first week of January, had a significant impact on the pricing," Collins noted.

In early November, the ratings agency upgraded the board's COPs to AA from AA-.

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