A firmer tone in the municipal bond market persisted Wednesday, even as supply rose with the largest deals of the week pricing for investors. Many of the deals were oversubscribed and bumped up in price in a sign of demand.
In the largest deal, Barclays priced for institutions nearly $2.6 billion of Regents of the University of California general revenue bonds, rated Aa1 by Moody’s Investors Service, AA by Standard & Poor’s, and AA-plus by Fitch Ratings. The first pricing of $1.15 billion included two series, $546.9 million and $600 million of tax-exempt bonds.
One San Francisco trader said the deal looked rich. “The deal gets done. It looks expensive but the market has wind in its back..”
Yields on the first series of $546.9 million ranged from 4.15% with a 4% coupon in 2031 to 4.60% with a 4.5% coupon and 4.34% with a 5% coupon in a split 2038 maturity. The bonds are callable at par in 2023.
A Los Angeles trader said the 2038 term was oversubscribed for and yields were lowered four basis points.
The second series of $600 million was priced to yield 3.10% with 5% and 3.25% coupons in a split 2048 maturity. The bonds had a mandatory put in 2023. “The 5% coupon was by far where demand was,” the L.A. trader said.
Prices were not yet available on $700 million of taxable bonds and $600 million of variable rate demand bonds.
“As far as I know the rest of the deal got done,” he said. “The rest of the market is firming again. It feels good. The calendar is still light. But otherwise, we’d like to see the outflows stop. It feels like there is more of a bid side and deals are oversubscribed.”
In other primary market deals, Siebert Brandford Shank & Co. repriced for institutions $900 million of New York City general obligation bonds, following a two-day retail order period. The bonds are rated Aa2 by Moody’s and AA by Standard & Poor’s and Fitch.
Yields on the first series of $300 million ranged from 0.37% with a 5% coupon in 2015 to 4.16% with a 5% coupon in 2033. The bonds are callable at par in 2023. Yields were lowered as much as three basis points on select maturities from preliminary pricing Wednesday morning.
Yields on bonds had already been lowered between two and six basis points from the second retail pricing Tuesday, though yields on bonds maturing between 2019 and 2021 were raised one to three basis points. Bonds had already been lowered one and two basis points from the first retail order period on bonds maturing between 2025 and 2033.
Yields on the second series of $179 million ranged from 0.78% with a 4% and 5% coupon in a split 2016 maturity to 2.29% with a 4% and 5% coupon in a split 2020 maturity. Yields were lowered two basis points on bonds maturing in 2016 and one basis point on 2019 bonds from preliminary pricing.
From retail pricing, yields on bonds maturing in 2018 were lowered two basis points while yields on bonds maturing in 2019 and 2020 were raised three basis points.
In institutional pricing, the issuer added two additional series, including $368.8 million and $49 million of fiscal 2014 bonds.
Yields on the first series of $368.8 million ranged from 0.37% with a 5% coupon in 2015 to 4.16% with a 5% coupon in 2033 and are callable at par in 2023. Yields were lowered as much as two basis points from preliminary pricing.
Yields on the second series of $49 million ranged from 0.18% with a 2% coupon in 2014 to 4.28% with a 4.25% coupon in 2032 and are callable at par in 2023. Yields were lowered as much as two basis points from preliminary pricing.
“The secondary is much better than it had been and it seems like munis want to have a typical Fall,” the San Francisco trader said, referring to a generally constructive tone in the fixed-income markets heading into the fourth quarter. “We are getting help from distance from Detroit, better price action on Puerto Rico, and so the credit news is not as amplified. Munis look cheap to Treasuries and it looks like money is finding its way into bonds. And supply is reduced.”
In the California market specifically, prices have firmed. “When California general obligations were north of 5% and the lesser credits were in the 5.25% to 5.50% range, it seemed like a relatively brief window before crossover buyers and retail come in,” the trader said. “A nearly 10% taxable equivalent yield is worth it even if stocks keeping going up.”
On Wednesday, yields on the triple-A Municipal Market Data scale ended as much as three basis points lower. The 10-year and 30-year yields fell two basis points each to 2.54% and 4.11%, respectively. The two-year was steady at 0.36% for the fourth session.
Yields on the Municipal Market Advisors scale ended as much as two basis points lower. The 10-year and 30-year yields slid one basis point each to 2.69% and 4.24%, respectively. The two-year was steady at 0.54% for the fifth consecutive trading session.
The Treasury yield curve flattened with yields rising on the short-end and falling on the long-end. The two-year yield increased two basis points to 0.35%. The benchmark 10-year yield fell four basis points to 2.62% and the 30-year yield slid two basis points to 3.65%.
