Municipals soften as market activity dries up; Puerto Rico GDB prices $1.8 billion of notes

By Sheri Kasprzak

New York, Dec. 22 - Municipals were softer on Thursday as the market moved closer to the long holiday weekend, said market insiders.

Long bonds in particular were impacted, with 30-year yields seen up by more than 6 basis points. Twenty-year yields were up almost 6 bps, and 10-year yields were up more than a basis point.

Meanwhile, despite light issuance, municipals continued to outperform Treasuries, said Alan Schankel, managing director with Janney Montgomery Scott LLC.

"With the 10-year AAA benchmark at 1.93% compared to 1.98% on the 10-year Treasury bond, the [municipal-to-Treasury] ratio fell below 100% for a second session [on Wednesday]," Schankel wrote in a report released Thursday.

"Despite light activity, investor interest in munis continues, with ICI reporting $868 million of inflows to municipal mutual funds in the week ending Dec. 14, the 16th week of positive flows."

Puerto Rico GDB notes price

In Thursday's light pricing action, the Puerto Rico Government Development Bank sold $1.8 billion of series 2011 senior notes, said a pricing sheet. The offering significantly boosted the week's primary market action, which had previously been estimated at less than $1 billion.

The deal included $1.4 billion of series 2011H senior notes and $397.94 million of series 2011I senior notes.

The series 2011H notes are due 2015, 2017, 2019, 2026 and 2021 to 2023. The serial coupons range from 4.5% to 5%. The coupon is 3.8% for the 2015 notes, 4.15% for the 2017 notes, 4.5% for the 2019 notes and 5.2% for the 2026 notes. All of the series 2011H notes priced at par.

The 2011I notes are due 2014 and 2018. The 2014 notes have a 3.375% coupon and priced at par, and the 2018 notes have a 4.35% coupon and priced at 98.458.

The notes were sold through senior manager Santander Securities Inc.

Proceeds will be used to increase the bank's investment portfolio, make loans to government entities within the commonwealth and redeem the bank's series 2009C-D and 2010A senior notes.

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