Municipals soften as secondary struggles; Oregon DOT brings to market $409.78 million bonds

By Sheri Kasprzak

New York, Oct. 9 - Municipals cheapened again on Wednesday, insiders reported.

"Bid/offers are widening and have been all week," a trader said.

"We're off a touch across, particularly at 10 years where yields are about 2 bps off."

A weaker Treasuries market didn't help municipals. Following the release of the September Federal Open Market Committee meeting minutes, the 30-year bond yield climbed by 5 bps and the 10-year note yield rose by 3 bps.

Oregon DOT brings bonds

Heading up the day's primary action, the Oregon Department of Transportation came to market with $409,775,000 of series 2013A tax-exempt highway user tax revenue bonds, said a pricing sheet.

The bonds (Aa1/AAA/AA+) were sold through Morgan Stanley & Co. LLC and Citigroup Global Markets Inc.

The bonds are due 2014 to 2034 with a term bond due in 2038. The serial coupons range from 2% to 5% with 0.15% to 4.27% yields. The 2038 bonds have a 5% coupon and priced at 106.77 to yield 4.17%.

Proceeds will be used to finance approved highway projects.

Puerto Rico paper trades lower

Looking to Puerto Rico paper, issuers from the commonwealth traded lower on Tuesday with hedge funds, distressed debt buyers and other non-traditional muni investors increasing their presence thanks to lower dollar prices, said Alan Schankel, managing director with Janney Montgomery Scott LLC.

"Consider two block trades of [Puerto Rico] Electric Power Authority issues," said Schankel.

"A block of $1 million 7% of 2040, which came to market at $99.15 in early August, traded at $79 in the afternoon, generating a 9.1% yield, while a $2.6 million piece of 5.5% of 2038 traded in the morning at $70 dollar price to yield 8.4%.

"In other times, the 7% bond might have carried a lower yield, reflecting the unfavorable tax effects of market discount for bonds below de minimis, but the newer group of investors often focuses on dollar price better than a higher cost, even if the yield is less attractive.

"The same dichotomy can be observed between short and long maturities with most 10-year maturities now offering more yield than 30-year counterparts due to dollar price considerations."

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