Tax-exempts remained slightly weaker yesterday, as participants continued digesting the week's new-issue supply, including California's $6.5 billion general obligation deal, which priced for institutions Tuesday, one day ahead of schedule.
"We're a little off today," a trader in New York said. "We're just trying to deal with all the supply that we've been hit with this week. There isn't too much more to come now, but there's a lot out there now. There's some trading going on, but it's not overly active. We're probably off a basis point or two at this point."
"I still think we're handling the supply pretty well, all things considered," a trader in Los Angeles said. "That's a lot of supply to be dropped on us all at once, not to mention some of the other pretty sizeable deals that have come out recently, so I don't think we're doing too badly. For today though, we're definitely weaker, but not by more than two basis points overall really."
California was set to pace the new-issue market yesterday with its $4 billion general obligation offering. However, after selling a whopping $3.2 billion of bonds in less than two days of its retail order period, the state Tuesday afternoon accelerated the institutional pricing, bringing the bonds for institutions one day earlier than planned while increasing the size of the deal to more than $6.5 billion, to meet overwhelming demand.
The deal matures from 2013 through 2029, with term bonds in 2031, 2033, 2035, and 2038. Yields range from 3.20% priced at par in 2013 to 6.10% with a 6% coupon in 2038. The largest single maturities are on the long end of the deal, where the 2033 maturity contains $1.1 billion of bonds and the 2038 maturity contains $1.2 billion.
The deal - priced by co-senior managers Citi and Merrill Lynch & Co. - marks the fourth-largest deal in the history of the municipal market, trailing only Illinois' $10 billion of pension bonds from June 2003, California's $7.92 billion December 2004 transaction, and the California Department of Water Resources' $7.01 billion sale from November 2002.
The increase to the sale makes available $2.6 billion for infrastructure projects delayed or stopped because of a financing freeze imposed last December, according to information from the state treasurer's office. The balance of the proceeds will be used to reimburse the state pooled money investment account for infrastructure project loans made before the freeze and that have not been repaid because the state could not sell bonds, the press release indicated. Until this sale, the tight credit market and the state's prolonged budget crisis kept California out of the bond market for nine months.
"This is a great result for California's workers, businesses, and economy," Treasurer Bill Lockyer said in a press release. "Investors stepped up and showed their confidence in California, and now we're $2.6 billion closer to getting our economically vital infrastructure program back up to full speed."
"Without the Legislature and governor making the tough choices last month to balance the state's $42 billion budget deficit, this response would not have been possible," Assembly Speaker Karen Bass said in a separate release. "Clearly, investors have spoken and they believe California is back in business."
The bonds are callable at par in 2019. California last week was hit by one-notch downgrades from Moody's Investors Service, which dropped it to A2, and Fitch Ratings, which lowered it to A. Last month, Standard & Poor's downgraded the state to A.
In the new-issue market yesterday, JPMorgan priced $125.3 million of revenue bonds for the New York City Trust for Cultural Resources in two series. Bonds from the $47.9 million Series A mature in 2034 and 2039, yielding 5.09% and 5.12%, both with 5% coupons. The bonds are callable at par in 2019. Bonds from the $77.5 million Series B mature in 2036, yielding 2.75% priced at par. These bonds are not callable. The credit is rated Aa2 by Moody's and AA by Standard & Poor's.
The Treasury market showed some losses yesterday. The yield on the benchmark 10-year note, which opened at 2.79%, finished at 2.74%. The yield on the two-year note was quoted near the end of the session at 0.97% after opening at 0.94%. The yield on the 30-year bond, which opened at 3.64%, was quoted near the end of the session at 3.73%.
The Treasury Department auctioned $34 billion of five-year notes, with a 1 3/4% coupon, a 1.849% high yield, a price of about 99.53. The bid-to-cover ratio was 2.02. Federal Reserve banks bought $1.6 billion for their own account in exchange for maturing securities.
As of Tuesday's close, the triple-A scale in 10 years was at 120.7% of comparable Treasuries, according to Municipal Market Data. Additionally, 30-year munis were 134.4% of comparable Treasuries. Also, as of the close Tuesday, 30-year tax-exempt triple-A rated general obligation bonds were at 146.7% of the comparable London Interbank Offered Rate.
In economic data released yesterday, durable goods orders increased 3.4% in February, after a revised 7.3% drop the previous month. Economists polled by Thomson Reuters had predicted a 2.0% decline.
Excluding transportation, durable goods orders jumped 3.9%, after a revised 5.9% decline the prior month. Economists polled by Thomson Reuters had predicted a 2.0% drop.
Sales of new single-family homes increased 4.7% to a 337,000 seasonally adjusted annual rate in February. The February figure came after an upwardly revised 322,000 rate in January, a 13.2% drop. Thomson Reuters' poll of economists had predicted a 300,000 sales level for February.
