Munis Pretty Flat as Several Big Deals Loom

The municipal market was unchanged yesterday amid rather light trading ­activity.

“It’s fairly quiet, but there is some business getting done,” a trader in New York said. “There’s just not a whole lot of movement. I’m really not seeing anything to sway me from calling it just pretty ­unchanged.”

“There’s not a whole lot happening,” a trader in Los Angeles said. “We’re just flat, and there hasn’t been a ton of activity. Just a quiet Monday, really. But I expect the activity to pick up in a big way the next couple of days.”

The Treasury market was mixed yesterday. The yield on the benchmark 10-year note opened at 3.83% and was also quoted near the end of the session at 3.83%. The yield on the two-year note opened at 0.98% and finished at 0.94%. The yield on the 30-year bond finished at 4.74% after opening at 4.72%.

Yesterday’s Municipal Market Data triple-A scale yielded 3.05% in 10 years and 3.76% in 20 years, matching the Friday’s levels. The scale yielded 4.13% in 30 years yesterday, also matching Friday’s level.

As of Friday’s close, the triple-A muni scale in 10 years was at 80.5% of comparable Treasuries and 30-year munis were 88.2% of comparable Treasuries, according to MMD, while 30-year tax-exempt triple-A general obligation bonds were at 91.4% of the comparable London Interbank Offered Rate.

Municipal issuers this week will unveil several large deals — anchored by a $900 million Pennsylvania general obligation offering — on the heels of last week’s equally hefty post-holiday slate.

Issuers are expected to sell $9.16 billion of long-term debt this week, according to Ipreo LLC and The Bond Buyer. That is more than the revised $6.27 billion that greeted investors last week after they returned from the long holiday hiatus, according to Thomson Reuters.

The Pennsylvania deal is expected to sell competitively tomorrow with a structure that includes $604.1 million of taxable Build America Bonds maturing from 2020 to 2030, and $295.8 million of tax-exempt GO refunding bonds maturing from 2011 to 2019.

The proceeds will be used to fund various capital facilities projects and environmental initiatives. The bonds are rated Aa2 by Moody’s Investors Service and AA by Standard & Poor’s and by Fitch Ratings.

The negotiated calendar is also rife with large deals this week, including a multifaceted sale totaling $773 million from Chicago that is expected to be priced by Siebert Brandford Shank & Co. ­tomorrow.

It will follow a retail order period for the tax-exempt series and indications of interest in the taxable series, both scheduled for today.

The deal consists of $420 million of tax-exempt GO project and refunding bonds, $110 million of taxable project and refunding GOs, $110 million of taxable project GOs that are designated as direct-pay BABs, and $133 million of traditional taxable GO project bonds, which are recovery zone economic development bonds, according to the preliminary official statement.

The tax-exempt bonds are expected to mature serially from 2018 to 2033, the traditional taxable bonds are tentatively set to mature in 2031, the BABs are expected to mature in 2036, and the RZEDBs are tentatively structured to mature in 2040.

The Chicago bonds are rated Aa3 by Moody’s and AA by Fitch. Siebert had not yet received a rating confirmation for the new deal from Standard & Poor’s as of press time.

Also this week, Arizona is slated to sell $733 million of certificates of participation in a negotiated deal being senior-managed by Morgan Stanley tomorrow. Proceeds are being used to help raise cash for the financially strapped state.

The deal will test the waters for the Arizona COPs after they were downgraded in December to A2 from A1 by Moody’s and to A-plus from AA-minus by Standard & Poor’s.

The debt will be secured by lease payments made by the state. Proceeds will be used to raise cash for a school aid payment due in February.

In the new-issue market yesterday, ­Colorado competitively sold $260 million of education loan program tax and revenue anticipation notes to various bidders.

A $210 million piece was sold to ­JPMorgan, with an effective rate of 0.281%. The remaining $50 million was sold to Wells Fargo Securities in two separate $25 million pieces, at effective rates of 0.276% and 0.266%, respectively.

The Trans mature in August with a 1.5% coupon, and were not formally re-offered.

The credit is rated MIG-1 by Moody’s and SP-1-plus by Standard & Poor’s.

In a weekly report, George Friedlander, muni strategist at Morgan Stanley Smith Barney, wrote: “The municipal bond market spent the early part of 2009 recovering from the crisis that had occurred late in 2008, but then went on to continue to perform impressively for the remainder of the year.”

“On the long end, this strong performance continued right through December 2009, when Treasury yields moved substantially higher and intermediate muni yields followed to a degree, but long-term muni yields actually declined,” Friedlander wrote.

“We are not positing this as unvarnished good news: although it is certainly is a positive for issuers, but it creates challenges for individuals with cash to spend or with a significant amount of short maturity paper providing paltry returns,” he wrote. “Nevertheless, in our view, it reflects a key reality in the muni market: demand has dominated supply for the past year, and we see no reasons for that pattern to reverse any time soon.”

The economic calendar was light ­yesterday.

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