Municipals keep rallying; Pennsylvania Economic Development Finance's $112 million bonds ahead

By Sheri Kasprzak

New York, Jan. 9 - Municipals continued the rally begun last week, with 15-year yields closing down by nearly 23 basis points on Monday.

"Demand has been driving us," said one trader reached during the session.

"There's a phenomenal amount of demand. We're seeing a lot of secondary activity. I think there's a bit more coming in primary this week than last, and I suspect that's going to get gobbled up very quickly."

Twenty-year yields on Monday were also firmer, down by 9 bps, and 30-year yields were down almost 3 bps.

Issuance this week should be heavier than last week but still well below the volume seen at the beginning of 2011, said Tom Kozlik, municipal credit analyst with Janney Montgomery Scott LLC.

"Municipal market primary market issuance is lighter than average again this week, as only about $2.8 billion is slated for negotiated sale," Kozlik said.

Pennsylvania Economic deal set

Among the $5 billion of new issues coming up this week, the Pennsylvania Economic Development Finance Authority is set to price $112 million of series 2012 governmental lease revenue bonds through Citigroup Global Markets Inc.

The offering was originally slated to price in late December, but like many deals coming to market early this year, market conditions are a major factor.

"We're seeing a lot of stuff that was delayed from late last year coming to market now," said one sellside source asked about the trend.

Last week, the Orange County School Board priced an offering it had intended to price in December. The board sold $58.53 million of series 2012A refunding certificates of participation.

According to the board's chief financial officer, Richard Collins, the deal was rescheduled because of volatile market conditions late in the year. With financial unrest in Europe and other parts of the world, Collins said the board's financing team felt it would be wise to postpone the deal. The beginning of the year, Collins said, brought calmer conditions.

The Pennsylvania bonds (Aa3) will be used to purchase a building and a parking garage located adjacent to the capitol building in Harrisburg that is currently occupied mostly by commonwealth offices.

North Carolina to sell Garvees

Also coming up during the week, the State of North Carolina is gearing up to sell $181.34 million of series 2012 grant anticipation vehicle revenue bonds. The deal is slated to price on Wednesday through Bank of America Merrill Lynch.

The bonds (Aa2/AA/AA-) will be used to widen, replace and relocate a series of highways and interstates within the state.

The deal comes less than a month after the state's sale of series 2011 Garvees. In mid-December, the state sold $156 million of the bonds, also through Bank of America Merrill Lynch.

Those bonds are due March 1, 2023 and have a split maturity with a 2% and a 4% coupon. Both priced to yield 2.1%.

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