The municipal market was slightly firmer yesterday as the California State Public Works Board sold $743.3 million of lease revenue bonds.
In the new-issue market, Wells Fargo Securities priced $743.3 million of lease revenue bonds for the Public Works Board in two series.
Bonds from the $591.6 million Series I-1 mature from 2010 through 2024, with term bonds in 2029 and 2034. Yields range from 2.65% with a 4% coupon in 2012 to 6.625% priced at par in 2034. Bonds maturing in 2010 and 2011 were not formally re-offered.
Bonds from the $151.7 million Series J mature from 2013 through 2026, with term bonds in 2029 and 2034. Yields range from 3.19% with a 4% coupon in 2013 to 6.05% with a 6% coupon in 2034.
The bonds, which are callable at par in 2019, are rated A1 by Moody’s Investors Service, A-minus by Standard & Poor’s, and BBB-minus by Fitch Ratings.
The deal was also set to include approximately $250 million of taxable Build America Bonds, but this portion of the deal — along with some of the Series I-1 bonds — was pulled.
“The deal originally was sized at $1.34 billion. But the state decided not to finance construction of the new condemned inmate complex at San Quentin with proceeds from the sale,” Tom Dresslar, spokesman for state Treasurer Bill Lockyer, wrote in a press release.
“Legal questions arose Wednesday about whether the San Quentin facility could be funded with the bonds. The state did not have enough time to address those issues, and decided to drop the project from sale. The action reduced the deal’s size by $596.7 million,” Dresslar wrote. “A side effect of the downsizing is that none of the bonds were sold as BABs.”
The BABs were to be priced by Jefferies & Co.
Wednesday, California sold $402.3 million of the tax-exempt bonds to retail investors. Series I-1 bonds maturing from 2010 through 2021, in 2029, and in 2034 were offered to retail investors, with yields ranging from 2.68% with a 4% coupon in 2012 to 6.625% priced at par in 2034. Bonds maturing in 2010 and 2011 were decided via sealed bid.
Also, all bonds from Series J were offered to retail investors, maturing from 2013 through 2026, with term bonds in 2029 and 2034, and with yields ranging from 3.27% with a 4% coupon in 2013 to 6.125% priced at par in 2034.
Traders said tax-exempt yields in the secondary market were lower by two or three basis points.
“The general feeling is that it is firmer, but I’m not sure I’m on board with it,” a trader in Los Angeles said. “It doesn’t feel like the secondary has been anywhere near as up as the [Municipal Market Data triple-A scale] says, and it’s been that way all week.
“The new issues came priced appropriately to the MMD though,” the trader continued. “They marked up the Cal Public Works deal, and it looks like they marked the A-rated portion of that way too much, in my opinion. The last couple of California deals came cheap and got marked up a lot, and I think the state is looking at that saying even though the name Cal Public Works isn’t the best, they’re not going to leave a lot of money out on the table. And that’s really what kind of scares me.”
The Treasury market mostly showed slight gains yesterday. The yield on the benchmark 10-year note opened at 3.36% and was quoted near the end of the session at 3.35%.
The yield on the two-year note opened at 0.74% and was quoted near the end of the session at 0.72%. The yield on the 30-year bond was quoted near the end of the session at 4.28% after opening at 4.30%.
Yesterday’s MMD triple-A scale yielded 2.81% in 10 years and 3.79% in 20 years, after levels of 2.87% and 3.80%, respectively, on Wednesday. The scale yielded 4.31% in 30 years yesterday, after Wednesday’s level of 4.33%.
As of Wednesday’s close, the triple-A muni scale in 10 years was at 85.2% of comparable Treasuries, according to MMD, while 30-year munis were 100.7% of comparable Treasuries.
Also on Wednesday, 30-year tax-exempt triple-A rated general obligation bonds were at 104.6% of the comparable London Interbank Offered Rate.
Elsewhere in the new-issue market yesterday, JPMorgan priced $130 million of bonds for Anchorage in two series, including $114.8 million of taxable BABs.
The BABs mature from 2024 through 2026, with term bonds in 2029 and 2039. Yields range from 5.877% priced at par in 2024, or 3.82% after the 35% federal subsidy, to 6.558% priced at par in 2039, or 4.26% after the subsidy. The bonds were priced to yield between 210 and 275 basis points over the comparable Treasury yields.
Anchorage also sold $15.2 million of tax-exempt bonds, priced by JPMorgan. The bonds mature from 2019 through 2024, with yields ranging from 3.69% with a 5% coupon in 2019 to 4.28% with a 5% coupon in 2024.
The bonds, which are callable at par in 2019, are rated A-plus by Standard & Poor’s and Fitch.
In economic data released yesterday, initial jobless claims were 505,000 for the week ending Nov. 14, unchanged from the previous week. Economists polled by Thomson Reuters expected 505,000 claims.
