Muni Prices End Stronger; Calif. Leads the Way

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Prices of top-rated municipal bonds ended higher, traders said, with yields on some maturities falling by three basis points.

In the primary market, two large deals from California issuers led the slate of new bond issues that traders said met a good reception.

 

Secondary Market

The yield on the 10-year benchmark muni general obligation closed down three basis points to 1.93% from 1.96% on Tuesday (also set three basis points lower in the quarter-end April roll), while the yield on 30-year GO declined one basis points to 2.79% from 2.80%, according to the final read of Municipal Market Data's triple-A scale.

Treasury prices were higher. The yield on the two-year Treasury note declined to 0.53% from 0.56% on Tuesday, while the 10-year yield decreased to 1.87% from 1.94% and the 30-year yield dropped to 2.48% from 2.54%.

The 10-year muni to Treasury ratio was calculated on Wednesday at 103.4% versus 101.6% on Tuesday, while the 30-year muni to Treasury ratio stood at 112.8% compared to 110.2%.

 

Primary Market

Two big offerings from California issuers topped Wednesday's new issue calendar.

The California Department of Water Resources' $765.93 million of power supply revenue bonds were priced for institutions by JPMorgan.

The bonds were priced to yield 1.59% with 2%, 3%, 4% and 5% coupons in a 2021 maturity split four ways and also to yield 1.78% with 2%, 3%, 4% and 5% coupons in a 2022 maturity split four ways. The bonds had been priced for retail on Tuesday to yield 1.56% with 2%, 3%, 4% and 5% coupons in a 2021 maturity split four ways and also to yield 1.77% with 2%, 3%, 4% and 5% coupons in a 2022 maturity split four ways. The issue is rated Aa2 by Moody's, AA by S&P and AA-plus by Fitch.

Traders said the deal was attractively priced.

"In general the deal seemed attractive to begin with and then they cheapened it up and then re-priced again closer to what it was to begin with … that leads me to believe the deal has gone very well," said a West Coast trader. "They couldn't get it done in 2s, 3s, and 4s and shoved everything into 5s, which shows you people really love those 5% coupons. The deal had over-demand, I think it was somewhere around twice over-subscribed," the trader said.

Since 1995, the Department has sold approximately $29 billion of bonds, including water and power issues. The largest issuance came in 2002 and 2010 when it sold $12 billion and $5 billion, respectively. This contrasts to 1999, 2000, 2003, 2006 and 2007, when no bonds were sold.

Barclays Capital priced the Regents of the University of California's $500 million of Series 2015 AQ taxable general revenue bonds. The bonds were priced at par to yield 4.767%. The deal is rated Aa2 by Moody's and AA by S&P and Fitch.

Citi received the written award on the Illinois Municipal Electric Agency's $594 million Series 2015A power supply system revenue refunding bonds. The university came back to the market only weeks after having sold over $1 billion of bonds on March 11. The bonds were priced to yield from 0.69% with a 5% coupon in 2017 to 3.77% with a 4% coupon in 2035. This issue is rated A1 by Moody's, A by S&P and A-plus by Fitch.

Philadelphia came to market this week with two separate issues totaling $417.56 million. JPMorgan received the official award on Wednesday for the city's $275.82 million of Series 2015A water and wastewater revenue bonds. The bonds were priced as 5s to yield 3.45% in 2040 and 3.50% in 2045. Bank of America Merrill Lynch received the written award for the city's $141.74 million of Series 2015B water and wastewater revenue refunding bonds. The bonds were priced to yield from 1.32% with a 5% coupon in 2019 to 2.02% with a 5% coupon in 2022 and from 2.94% with a 5% coupon in 2028 to 3.67% with a 4% coupon in 2035. Both issues are rated A1 by Moody's, A by S&P and A-plus by Fitch.

Philadelphia wasn't the only Keystone State issuer in the market. Morgan Stanley priced the Pennsylvania Industrial Development Authority's $105.42 million of Series 2015 taxable economic development revenue refunding bonds. The bonds were priced at par to yield 1.635% in 2016, 2.967% in 2021 and 3.556% in 2024. The bonds were rated A1 by Moody's, A-plus by S&P and A by Fitch.

On Thursday, the Board of Regents for Texas A&M University will be selling two separate issues totaling $289 million in the competitive arena. The issues consist of $144 million Series 2015A permanent university fund bonds and $145 million Series 2015B taxable permanent university fund bonds. Both issues are rated triple-A by Moody's, S&P and Fitch.

The University last sold bonds competitively on Nov. 13, 2013, when Morgan Stanley won $209 million Series 2013 permanent university fund bonds with a true interest cost of 2.7867%

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