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Municipals round out week mostly flat; Connecticut brings $560.42 million of G.O. bonds
By Sheri Kasprzak
New York, Oct. 4 - Municipals closed out the week largely unmoved even as Treasuries hit a snag as the U.S. government prepared to enter week two of its shutdown.
Very light trading action and little primary activity on Friday and a new-issue calendar that is expected to be small for the week ahead offered little to move yields, said a trader during the afternoon.
"It's very slow," he said.
"Earlier in the day, we might've made a case to call it mixed, but I think it's evened out, and there's not much movement all across the curve."
Connecticut sells G.O. bonds
Heading up the day's light primary activity, the State of Connecticut came to market with one of the larger offerings of the week, $560.42 million of series 2013A GAAP conversion general obligation bonds.
The bonds were sold through Ramirez & Co. Inc.
The offering included $533.42 million of series 2013A GAAP conversion G.O. bonds and $27 million of series 2013A callable G.O. bonds, said pricing sheets.
The conversion G.O. bonds are due 2015 to 2027 with 1% to 5% coupons and 0.40% to 3.56% yields.
The callable G.O. bonds are due Oct. 15, 2026, have a 5% coupon and priced at 111.37 to yield 3.17%. Those bonds are callable at par on Oct. 15, 2020.
Proceeds will be used to finance a GAAP cash deficit for the state.
Puerto Rico faces economic woes
Debt from the Commonwealth of Puerto Rico has been dragging down the municipals market for some time now, but there are some positive signs, said Alan Schankel, managing director with Janney Montgomery Scott LLC, who spent a few days in San Juan recently.
"The legislator and legislative staff with whom I met believe that the tax/fee increases and pension reforms enacted as part of the FY 2014 budget were enormous accomplishments, worthy of more respect than the municipal market has offered in recent months, and it is difficult to argue otherwise," Schankel wrote in a report recapping his visit.
"No administration in memory has taken steps of this magnitude, steps that also include strengthened support for the three primary public corporations in the form of tax and fee increases."
Economic growth a problem
Although liquidity has improved for the commonwealth, it still faces some challenges, including a lack of economic growth, Schankel noted in his report.
"After peaking in November of last year, the Economic Activity Index, a measure of economic activity, shows steady contraction," Schankel wrote.
"The commonwealth needs to attract business investment to reverse economic malaise."
Tax increases, although important for stemming the commonwealth's fiscal problems, also stall economic growth.
Despite these problems, Puerto Rico has improved its liquidity, as evidenced by its ability to recently borrow $1 billion.
According to data from S&P Dow Jones Indices, the S&P Municipal Bond Puerto Rico index was down 0.66% for the month of September and 16.43% year to date.
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