Municipals slide with Treasuries as CPI falls; funded ratios stabilize, but pressure continues

By Sheri Kasprzak

New York, Oct. 15 – Municipals prices fell on Thursday in sympathy with weaker Treasuries as the Consumer Price Index fell 0.2% for September, indicating an interest rate hike could be on the horizon, market insiders said.

Yields on top-rated munis rose by 1 basis point to 2 bps on the session, even as Treasury yields rose 3 bps to 5 bps.

Meanwhile, Fitch Ratings reported Thursday that even though funded ratios continue to stabilize, pressure is mounting as more people retire and fewer state and local government employees are being hired.

“The median funded ratio for major state pension systems was almost unchanged for the second straight year in 2014 at 71.5%,” wrote Fitch analysts Laura Porter and Douglas Offerman.

Several years of strong market gains have offset steadily rising liabilities. However, the recovery of systems’ investment portfolios has not necessarily meant a recovery in their funded ratios, said the report.

“Unlike asset portfolios that are prone to year-to-year cyclicality, pension liabilities have risen steadily for all but a handful of closed systems because active employees continue to accrue benefits as they work,” Offerman noted.

“Additionally, few pension systems have implemented benefit reforms that immediately reduce liabilities.”

Funded ratios, therefore, have not returned to their pre-recession peaks.

States’ median debt burdens total 2.4% of personal income in 2014 while the median pension burden is 3.7% of personal income.

Texas Public Finance prices

Among Thursday’s pricing activity, the Texas Public Finance Authority sold $369.8 million of series 2015C taxable general obligation and refunding bonds. The deal was downsized from $441,865,000.

The bonds (Aaa/AAA/AAA) were sold through Piper Jaffray & Co. and Goldman Sachs & Co.

The bonds are due 2016 to 2035 with 0.35% to 4.108% coupons and all priced at par.

Proceeds will be used to finance grants for cancer research and prevention by the Cancer Prevention and Research Institute of Texas and to refund commercial paper.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.