Market Close: NY STARs Deal Gets $8 Billion In Orders

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A sale of New York Sales Tax Asset Receivables Corp. bonds was four-times oversubscribed on Tuesday, and a four-part deal from California also met strong demand as the biggest deals of the week came to market.

The $2 billion in New York STAR bonds generated $8 billion in orders, according to a trader in New York. Market participants said investors were so hungry for the bonds because while New York paper is frequently in the market, STARs doesn't issue often. The last time it came to market was in 2004, the trader said.

"I'm not saying the bonds are liquid gold," but they are valuable, he said. The bonds from this issuance won't trade much in the secondary, because investors will want to hold them, the trader said.

Yields on the bonds ranged from 0.62% with a 3% coupon in 2017 to 3.44% with a 3.375% coupon in 2033.

The bonds held a retail order period before they were priced, and yields were adjusted during their institutional sale.

Yields for bonds maturing in seven to 19 years were lowered from one to four basis points, with the longer maturities declining the most.

The New York trader said he anticipated yields will be further bumped during the trading day.

The bonds are rated Aa1 by Moody's Investors Service, triple-A by Standard & Poor's and AA-plus by Fitch Ratings.

Cali GOs' Pricings Revised Multiple Times During Institutional Sale

A $2.1 million four part California GO deal also came to market to adamant demand, a second trader in New York said. The deal's was upsized by $2.1 million from the amount originally scheduled.

Bonds for the $937 million new money part of the deal were priced with yields ranging from 0.11% with a 2% coupon in 2015 to 3.49% with a 5% coupon in 2044.

The largest section of the deal, $956.6 million of GO refunding bonds, were priced with yields from 0.10% with a 2% coupon in 2015 to 3.28% with a 5% coupon in 2034.

The $200 million section of the deal that contains a mandatory put bond was priced with a 1.53% yield with a 3% coupon in 2032. The bond's mandatory put date is Dec. 1, 2019.

There is an optional par call the June before the put date, on June 1, 2019.

Wells Fargo Securities was the lead manager for these three sections of the deal, and the bonds earned ratings of Aa3 from Moody's, A from S&P and A from Fitch Ratings.

The final part of the issuance, a $300 million green GO bond issuance with Bank of America Merrill Lynch as lead underwriter, priced with yields ranging from 3.15% with a 3% coupon in 2028 to 3.37% with a 5% coupon in 2037.

The bonds have an optional par call in 2024, and the same ratings as the other three parts of the deal. This portion of the deal was upsized from an originally scheduled $200 million issuance.

The deal held two days of retail order before the bonds entered their institutional sale on Tuesday, and the pricing of the bonds experienced some adjustments throughout the day.

First for the $937 million part of the deal yields for bonds maturing in two to eight years were raised by five basis points, and the nine year maturity by four basis points. Yields for bonds maturing from 10 to 30 years were lowered by two basis points.

The $956.6 million portion of the deal experienced similar adjustments ,with yields for bonds maturing in three to eight years also raised by five basis points, the nine year by four basis points, and bonds maturing from 10 to 13 years yields were lowered from two to five basis points.

The yield for the mandatory put bond was raised by 10 basis points from what is was the second day of retail order.

Yields on some of the bonds from the $937 million and the $956.6 million parts of the deal were further revised Tuesday afternoon.

In the $937 million section the nine year maturity's yield was lowered three basis points, the 10-year by one basis point, and bonds maturing from 13 to 30 years yields by two basis points.

For the $956.6 million section the nine-year maturity's yield was lowered by three basis point and the 10-year's by one basis points, and then yields for bonds maturing from 15 to 20 years were lowered from one to three basis points.

Secondary Trading

Tuesday morning the Dormitory Authority of the State of New York emerged as one of the top traded issues in the secondary market Tuesday morning as investors made room in portfolios for the incoming $2 billion New York City deal.

DASNY picked up heavy trading on Tuesday morning, with $24.38 million in trades recorded as of 12:30 p.m., EST, according to data provided by Municipal Securities Rulemaking Board's disclosure website EMMA. The volume was edging near double Monday's $13.08 million and marked the heaviest day of trading volume since the bonds were issued in early August, according to EMMA.

Yields on the income tax revenue bonds 5s of 2037 fell to 3.21% in round lot trading on Tuesday morning, down from a high of 3.374% the day prior, according to EMMA.

Other than that a second trader in New York said the secondary market was relatively quiet, and would remain that way this week because of the slew of primary deals scheduled for pricing.

Broader Market:

Municipal bonds strengthened through most of the curve on Tuesday, according to Municipal Market Data's triple-A scale. Yields fell by one basis point for bonds maturing in five to six years, by two basis points for seven to eight year maturities, and by three basis points for nine to 13 year maturities.

They fell by two basis points for 14 to 22 year maturities, and by three basis points for 23 to 30 year maturities.

The two-year held steady at 0.31%, according to Municipal Market Advisors' data. The 10-year's yield fell by one basis point to 2.20%, and the 30-year by one basis point to 3.33%.

The second trader in New York said munis were following Treasuries, which strengthened after President Obama's Tuesday speech about the Syrian airstrikes.

The two-year note fell by two basis points from Monday to 0.54%. The 10-year fell by three basis points to 2.54%, and then 30-year by four to 3.25%.

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