Municipals end flat in slow session ahead of Labor Day; San Bernardino eligible for bankruptcy

By Sheri Kasprzak

New York, Aug. 30 - Municipals closed mostly flat in a quiet session ahead of the Labor Day holiday, market insiders said. The muni market has been closely following Treasuries, which were mixed at the end of the slow day.

The 10-year Treasury note closed out the session up 1 basis point at 2.772%, and the 30-year bond yield was down 2 bps at 3.694%. The five-year note ended down 1 bp at 1.624%. Treasuries have been following closely headlines as the U.S. threatens military action against Syria, but so far no action has been taken.

San Bernardino can file for bankruptcy

Moving to bankruptcy news, a federal judge ruled that the City of San Bernardino, Calif., is eligible to declare Chapter 9 bankruptcy. The city filed for bankruptcy protection in August 2012, but the California Public Employees' Retirement system argued that the city failed to negotiate in good faith with its creditors, therefore disqualifying it from filing for bankruptcy.

"San Bernardino was one [of a] select few California cities located in a geographic location more prone to the recent boom and bust housing market cycle," said Tom Kozlik, municipal credit analyst with Janney Montgomery Scott LLC.

"The rare municipal market cases such as San Bernardino, a select few other California issuers and Detroit remain outliers and are not reflective of overall credit conditions. Investors do, however, need to be aware when local government issuers are unable to structurally balance their budgets, manage fixed costs, execute conservative budgets and consider stresses for the short, medium and long term."

Portland preps deal

Looking ahead to the holiday-shortened week, the City of Portland, Ore., is expected to price $215.52 million of series 2013A senior lien sewer system revenue and refunding bonds (Aa3/AA-/) on Thursday.

The bonds will be sold competitively and are due 2014 to 2038.

Proceeds will be used to finance capital facilities and improvements to the city's sanitary sewer and storm water drainage system and to refund the city's series 2003A second-lien sewer system revenue bonds.

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