Munis flat as Fed says it will buy mortgage-backed securities; housing issues dominate primary

By Sheri Kasprzak

New York, Sept. 13 - Municipal yields were mostly unmoved on Thursday as the Federal Open Market Committee said the Federal Reserve will pursue the purchase of mortgage-backed securities to speed to economic recovery process and the central bank extended its zero-interest-rate policy into 2015.

"Yields are mostly flat," said one trader reached in the afternoon.

"I think yesterday's weakness was largely due to headline fears. I think once the Fed's comments were released, it was kind of a non-issue. The week's supply has pretty much dried up, so the next couple of days are likely to be slow and flat."

Santa Ana schools downgraded

Moving to ratings activity, the Santa Ana Unified School District of California was downgraded on Wednesday by Moody's Investors Service to Aa3 from Aa2 with a negative outlook due to the district's limited ability to cut expenses if voters fail to approve a tax increase at the November election. This could lead to further reduction in state aid to school districts, said Alan Schankel, managing director with Janney Montgomery Scott LLC.

"The large Orange County district with $330 million in general obligation debt outstanding has struggled under the challenging state funding environment, eroding reserves to 10% of revenues in FY [2013], down from 20% in FY [2011]," Schankel wrote Thursday.

Massachusetts Housing prices

Heading up the day's primary action, the Massachusetts Housing Finance Agency sold $158.31 million of series 2012 taxable housing bonds, said a pricing sheet.

The offering included $107.05 million of series 2012C bonds and $51.26 million of series 2012D bonds.

The 2012C bonds are due 2013 to 2023 with term bonds due in 2027, 2032, 2037 and 2043. The serial coupons range from 0.467% to 3.729%, all priced at par. The 2027 bonds have a 4.029% coupon, the 2032 bonds have a 4.511% coupon, the 2037 bonds have a 4.711% coupon, and the 2043 bonds have a 4.836% coupon. The term bonds all priced at par.

The 2012D bonds are due 2013 to 2017 with coupons from 0.467% to 1.776%.

The bonds (Aa3//AA-) were sold through senior managers Bank of America Merrill Lynch and Raymond James/Morgan Keegan.

Proceeds will be used to purchase Treasury obligations.

South Carolina housing deal sealed

In other housing market news, the South Carolina State Housing Finance and Development Authority came to market with $65.71 million of series 2012A taxable refunding mortgage revenue bonds, said a pricing sheet.

The bonds were sold through Citigroup Global Markets Inc.

The deal included $25,265,000 of series 2012A-1 bonds and $40,445,000 of series 2012A-2 planned amortization class bonds.

The 2012A-1 bonds are due 2013 to 2019 with 0.35% to 2.524% coupons, all priced at par.

The 2012A-2 bonds are due July 1, 2034, have a 4% coupon and priced at 106.064.

Proceeds will be used to refund existing mortgage revenue bonds.

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