The biggest municipal bond deal of the year came to market from California on Tuesday, with buyer demand driving the issuer to increase the size of the sale by about $600 million to almost $2.9 billion.
In secondary trading, top quality municipal bonds finished stronger, traders said, with yields on some maturities falling by as much as four basis points.
Citigroup priced California's $2.86 billion of general obligation bonds for institutions after a one-day retail order period. The sale was originally sized at about $2.3 billion.
The deal was most-heavily oversubscribed for the longer maturity bonds, traders said, adding that the rest of issue was well received, too, leading to the issue's restructuring.
"There was a ton of demand, as they caught a good day and people like the state credit," a Midwest trader said. "Combine that with the built up demand for California paper and that is what you got with this deal. The final results were good, the bump [from the preliminary pricing to the repricing] was far – it wasn't too heavy handed, but it reflected the demand for the bonds."
The $789.42 million of various purpose GOs were priced to yield from 0.27% with a 4% coupons in 2016 maturity to 2.17% with a 5% coupon in 2026; and as 4s to yield 3.07% in 2032, as 4s to yield 3.20% in 2035, and as 4s to yield 3.40% and 5s to yield 3.05% in a split 2045 maturity.
The $69.98 million of school facilities GOs were priced as 4s to yield 2.96% in 2031 and 3.07% in 2032.
The $1.75 billion of various purpose GO refunding bonds were priced to yield from 0.27% with a 4% coupon in 2016 maturity to 3.24% with a 4% coupon and 2.89% with a 5% coupon in a split 2036 maturity.
The California deal is rated Aa3 by Moody's Investors Service, AA-minus by Standard & Poor's and A-plus by Fitch Ratings.
Since 2006, the Golden State has issued bonds an average of 8.4 times a year, selling about $93 billion, with the largest issuances in 2007 and 2009 when it offered $12.2 billion and $23.2 billion, respectively. The lows came in 2006 and 2011, when it issued $4.6 billion and $4.9 billion.
Bank of America Merrill Lynch priced the Empire State Development Corp. Urban Development Corp.'s $1.66 billion of Series 2016A general purpose personal income tax revenue bonds for institutions after a one-day retail order period.
The New York State issue was priced to yield from 0.92% with 3% and 5% coupons in a split 2019 maturity to 3.50% at par in 2038.
The bonds are rated triple-A by S&P and AA-plus by Fitch.
Since 2010, the ESDC has issued about $9.75 billion of debt, with the most issuance occurring in 2013 when it sold $3.28 billion of bonds after not coming to market in 2012.
In the competitive arena, Boston sold $148.11 million of bonds in two sales.
Citigroup won the $140 million of Series 2016A GOs with a true interest cost of 2.26%. The issue was priced to yield from 0.46% with a 5% coupon in 2017 to 3.12% with a 3% coupon in 2036.
BAML won the $8.11 million of Series 2016B GO refunding bonds with a TIC of 2.10%. The bonds were priced as 4s to yield 1.90% in 2026 and 2.10% in 2027.
Both sales are rated triple-A by Moody's and S&P.
Since 2006, Boston has issued bonds an average of 2.4 times a year, selling about $1.9 billion, with the largest issuances in 2012 and 2015 when it offered $261 million and $267 million, respectively. The lows came in 2006 and 2014, when Beantown issued $80 million and $153 million, respectively.
Also on Tuesday, Lancaster, Pa., competitively sold $125.8 million of Series 2016 GO combined purpose bonds. Morgan Stanley won the issue with a TIC of 3.497%. Pricing information was not available. The bonds are rated A1 by Moody's.
On Wednesday, the New Jersey Educational Facilities Authority is competitively selling two issues totaling $217.22 million. The deals consist of $117.22 million of Series 2016B Princeton University revenue refunding bonds and $100 million of Series 2016A Princeton University revenue bonds. Both issues are rated triple-A by Moody's and S&P.
Mesirow Financial is expected to price the Sweetwater Union High School, Calif.'s $264.5 million of GOs on Wednesday. The deal is rated A1 by Moody's A-plus by S&P and triple-A by Fitch.
Ramirez & Co. is set to price the Ohio Water Development Authority's $160 million of Fresh Water Series 2016A water development revenue bonds on Wednesday. The deal is rated triple-A by Moody's and S&P.
Secondary Market
The yield on the 10-year benchmark muni general obligation fell two basis points to 1.88% from 1.90% on Monday, while the 30-year muni yield fell four basis points to 2.86% from 2.90%, according to the final read of Municipal Market Data's triple-A scale.
Treasuries were higher on Tuesday. The yield on the two-year Treasury fell to 0.87% from 0.90% on Monday, while the 10-year Treasury yield dropped to 1.83% from 1.90% and the 30-year Treasury bond yield decreased to 2.63% from 2.71%.
The 10-year muni to Treasury ratio was calculated on Tuesday at 102.6% compared to 100.0% on Monday, while the 30-year muni to Treasury ratio stood at 108.5% versus 107.4%, according to MMD.
