NEW YORK – The California municipal market was mostly flat with a slightly firmer tone Thursday, amid elevated secondary trading activity, as San Francisco Public Utilities Commission competitively sold $344.2 million of taxable Build America Bonds.
“The market still is very firm in spite of Treasuries going down,” a trader in Los Angeles said. “I think it has a lot to do with supply and demand. There is really very little supply in the marketplace. All the new issues seem to come to market priced through with the expectations of where its going to be. At higher prices they do tend to get cleaned up.”
The trader also noted that the secondary market “has been active today.”
“I have noticed that things were marked up from yesterday, and are actually trading today,” the trader said. “You get the picture that Treasuries really don’t govern the municipal market. I think what it’s really governed by right now is the supply and demand. And there’s not enough supply and there seems to be a little more demand than supply. It seems to be firm.”
In the California new-issue market the San Francisco Public Utilities Commission competitively sold $344.2 million of taxable BABs to Bank of America Merrill Lynch, with a true interest cost of 3.81%.
The BABs mature from 2022 through 2027, with a term bond in 2040. Yields range from 4.90% in 2022, or 3.19% after the 35% federal subsidy, to 6.00% in 2030, or 3.90% after the subsidy, all priced at par. The bonds were priced to yield between 195 and 275 basis points over the comparable Treasury yield.
The San Francisco PUC also competitively sold $102.7 million of tax-exempt bonds to JPMorgan, with a TIC of 2.53%.
The bonds mature from 2015 through 2021, with yields ranging from 1.51% with a 5% coupon in 2015 to 3.00% with a 3% coupon in 2021. Bonds maturing in 2016 were not formally re-offered. The bonds are callable at par in 2020.
The credit is rated Aa2 by Moody’s Investors Service and AA-minus by Standard & Poor’s.
The Treasury market showed losses Thursday. The benchmark 10-year note was quoted recently at 2.94% after opening at 2.87%. The 30-year bond was recently quoted at 3.95% after opening at 3.93%. The two-year note was recently quoted at 0.57% after opening at 0.56%.
The Municipal Market Data triple-A scale yielded 2.57% in 10 years and 3.67% in 20 years Thursday, matching levels of 2.57% and 3.67% Wednesday. The scale yielded 3.97% in 30 years Thursday, matching 3.97% Wednesday.
Thursday’s triple-A muni scale in 10 years was at 88.0% of comparable Treasuries and 30-year munis were at 100.8%, according to MMD, while 30-year tax-exempt triple-A general obligation bonds were at 107.3% of the comparable London Interbank Offered Rate.
The yield environment also contributed to the Rector and Visitors of the University of Virginia’s $190 million competitive offering Wednesday crossing the 5% threshold, yielding 4.90% before accounting for the 35% federal subsidy. It yielded 3.19% after accounting for it.
“You are talking about a specialty state area, and this exemplifies those characteristics given that the fact you do have a scarcity of paper in Virginia,” said Howard Mackey, president of the broker-dealer division of Rice Financial Products. “From a BAB situation you might have a local appeal, with a high quality name in this market place. Virginia paper was still quiet attractive.”
In economic data released Thursday, initial jobless claims rose 37,000 to 464,000 for the week ending July 17, a figure that was slightly higher than economists had predicted.
But the four-week moving average for continuing claims decreased by 223,000 to 4.487 million for the week ending July 10, which was much lower than predicted.
Economists expected 445,000 initial claims and 4.650 million in continuing claims, according to the median estimate from Thomson Reuters.
Existing home sales fell 5.1% to a 5.37 million annual rate in June as home inventories increased, which could to push down prices in the months ahead.
Economists polled by Thomson Reuters expected 5.100 million existing home sales, according to the median estimate. Sales in May were unrevised at 5.660 million.
The composite index of Leading Economic Indicators slid 0.2% in June.
LEI was revised to up 0.5% in May, originally reported as a 0.4% jump.
The coincident index was flat in June, after a revised 0.5% increase in May, originally reported as a 0.4% hike, while the lagging index rose 0.1% after an unrevised 0.1% decline in May.
The LEI stands at 109.8, the coincident index is at 101.4 and the lagging index is at 107.6.
Economists polled by Thomson Reuters predicted LEI would be down 0.3% in the month.
Previous Session's Activity
The most actively traded security in the state yesterday was taxable Monrovia, Calif., 6.625s of 2020, which traded 137 times at a high of 100.954 and a low of 98.704.
