Municipals close mixed as snowstorm stalls action; about $9 billion of offerings on tap

By Sheri Kasprzak

New York, Feb. 2 – Municipals rounded out Monday on a mixed note with shorter maturities seen weaker and long bonds somewhat firmer, traders said, as a snowstorm once again stalled trading action.

A lot of market participants were snowed in Monday, impacting trading activity and putting some pressure on yields, particularly on the short end, said a trader in the early afternoon. Treasuries also played a role in the market direction with five-year and three-year note yields both rising 1 bp.

About $9 billion in new issues are expected in the coming week, led by a delayed Pennsylvania offering totaling $1 billion.

Supply remains strong, but inflows indicate continued demand. The Investment Company Institute reported $1.04 billion of inflows to municipal funds for the week compared to $970 million for the previous week.

Puerto Rico economy contracts

Looking to Puerto Rico, the Government Development Bank released its Economic Activity Index for December over the weekend, indicting the commonwealth’s economy shrank by 1.4% in 2014 compared to a 2.4% growth for the U.S. economy in 2014. This isn’t surprising, said Alan Schankel, managing director with Janney Montgomery Scott LLC.

“Except for modest improvement during 2012, the island economy has been contracting since 2006, a year which coincided with [the] final year of a 10-year phase out of federal tax provisions which exempted income of U.S. firms operating in Puerto Rico,” Schankel said Monday.

“Employment at pharmaceutical and chemical companies, the primary beneficiaries of this federal tax break, declined as the tax benefit vanished.”

Pennsylvania reschedules deal

Heading up Tuesday’s pricing slate, the State of Pennsylvania is on deck to price that $1 billion offering of general obligation bonds it delayed due to last week’s Northeastern snowstorm.

The state is on tap to price the bonds competitively.

The G.O.s are due 2016 to 2035, and proceeds from the offering will finance capital projects.

Trinity plans two

Also ahead, the Trinity Health Credit Group is on the calendar with two offerings, including a $961.43 million composite deal through the Michigan Finance Authority, the Idaho Health Facilities Authority and Montgomery County, Md. The group will also price $350 million of taxable bonds (Aa3/AA-/AA) independently.

Both offerings will be conducted through senior managers BofA Merrill Lynch and Goldman Sachs & Co.

The composite issue will be used to finance capital improvements and refund existing debt, while the taxables will be used for general corporate purposes.

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