California Holds Golden Ticket With $2.7B Deal

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In contrast to the calendar of the past week, which featured a variety of attention-getting deals, the upcoming calendar features one deal in particular that will be the talk of the market – California's $2.7 billion of general obligation bonds. The deal marks the second time this year that the Golden State has issued bonds in that amount.

Primary Market

Total bond volume for the week is estimated by Ipreo at $6.42 billion, down from $8.30 billion in the past week, according to revised data from Thomson Reuters. The upcoming slate is composed of $5.66 billion of negotiated bond deals and $758 million of competitive bond sales.

The calendar for the upcoming week is top heavy, as there are only nine scheduled deals greater than $100 million.

"The demand was extremely strong last week and I would expect it keep on continuing," said Dawn Mangerson, managing director and senior portfolio manager at McDonnell Investment Management. "It has been and will continue to be a difficult investing environment. Everything [last week] was 10 times over, and so even though people weren't at their desks and were on vacation, you would never know it."

The marquee deal of the week will account for 42% of the week's issuance, as JPMorgan is expected to price the state of California's $2.7 billion of various purpose GO bonds on Tuesday, following a one-day retail order period. The majority of the deal is going to be refundings, with $615 million of new money. The deal is expected to mature serially from 2017 through 2037 and include a term in 2046 and is rated Aa3 by Moody's Investors Service and AA-minus by S&P Global Ratings and Fitch Ratings.

"California paper is always in high demand, but given the lack of supply for the upcoming week I would imagine these will be gone in a hurry," Mangerson said.

Barclays is scheduled to run the books on the next largest deal, $542.125 million of senior airport revenue refunding non-alternative minimum tax and subordinate airport revenue refunding non-AMT bonds for the Minneapolis-St. Paul Metropolitan Airports Commission on Wednesday. The senior bonds are rated AA-minus by both S&P and Fitch, while the subordinate bonds are rated A-plus by S&P and Fitch.

Bank of America Merrill Lynch is on the docket to price the Illinois Finance Authority's $500 million of state clean water initiative revolving revenue bonds on Tuesday. The deal is rated triple-A by S&P and Fitch.

The largest competitive deal of the week will come from the state of Louisiana, a $169 million issue of GO bonds on Tuesday. The deal is rated Aa3 by Moody's, AA by S&P and AA-minus by Fitch.

Secondary Market

Top shelf municipal bonds finished steady to weaker on Friday.

Federal Reserve Chair Janet Yellen said recent economic data shows the case for raising interest rates had "strengthened," but that there was no pre-set course for rate hikes. Later, however, Federal Reserve Vice Chairman Stanley Fischer told CNBC that Yellen's remarks left open the possibility of a September rate hike – and perhaps another one after that this year.

Munis which had been steady in early activity, and then turned steady to stronger on Yellen's comments, finished steady to weaker after Fischer's remarks.

The yield on the 10-year benchmark muni general obligation rose one basis point to 1.42% from 1.41% on Thursday, while the yield on the 30-year fell was steady from 2.12%, according to the final read of Municipal Market Data's triple-A scale.

U.S. Treasuries which had been stronger in early trade, turned weaker late in the day. The yield on the two-year Treasury rose to 0.84% from 0.79% on Thursday, the 10-year Treasury yield gained to 1.63% from 1.58% and the yield on the 30-year Treasury bond increased to 2.29% from 2.27%.

The 10-year muni to Treasury ratio was calculated at 87.0% on Friday compared to 89.8% on Thursday, while the 30-year muni to Treasury ratio stood at 92.4% versus 93.8%, according to MMD.

Week's Most Actively Traded Issues

Some of the most actively traded issues by type in the week ended Aug. 26 were from Arizona, California and Illinois issuers, according to Markit.

In the GO bond sector, the Phoenix 5s of 2026 were traded 32 times. In the revenue bond sector, the California HFFA 3s of 2047 were traded 77 times. And in the taxable bond sector, the Illinois 5.1s of 2033 were traded 41 times.

Week's Most Actively Quoted Issues

Chicago and California issues were among the most actively quoted names in the week ended Aug. 26, according to Markit.

On the bid side, the Chicago taxable 5.432s of 2042 were quoted by 15 unique dealers. On the ask side, the California taxable 7.3s of 2039 were quoted by 17 unique dealers. And among two-sided quotes, the California taxable 7.55s of 2039 were quoted by 28 unique dealers.

Lipper: Muni Bond Funds See Inflows

For the 47th straight week, municipal bond funds reported inflows, according to Lipper data released on Thursday.

The weekly reporters saw $800.918 million of inflows in the week ended Aug. 24, after inflows of $1.059 billion in the previous week, Lipper said.

The four-week moving average remained positive at $878.639 billion after being in the green at $874.145 million in the previous week. A moving average is an analytical tool used to smooth out price changes by filtering out fluctuations.

Long-term muni bond funds experienced inflows, gaining $437.707 million in the latest week after inflows of $650.811 million in the previous week. Intermediate-term funds had inflows of $199.927 million after inflows of $147.707 million in the prior week.

National funds had inflows of $671.285 million on top of inflows of $879.368 million in the previous week. High-yield muni funds reported inflows of $147.840 million in the latest reporting week, after inflows of $253.987 million the previous week.

Exchange traded funds saw inflows of $148.664 million, after inflows of $125.347 million in the previous week.

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