NEW YORK – The California municipal market was weaker by six to eight basis points overall Tuesday, with weakness stretching to a 10-to-12 basis point range on the long, amid a flood of new-issue supply.
“There’s just a ton of supply out there today and it’s pushing yields higher,” a trader in Los Angeles said. “On the long end, we’re substantially weaker, maybe 10 to 12 basis points depending on what you’re trading. But even the shorter maturities are down at least three to five basis points.”
In the new-issue market Tuesday, Bank of America Merrill Lynch priced $789.4 million of taxable and tax-exempt debt for the Los Angeles County Public Works Financing Authority, including $688 million of taxable Build America Bonds.
The BABs mature from 2020 through 2025, with term bonds in 2033 and 2040. The bonds are priced at par to yield from 5.591% in 2020, or 3.63% after the 35% federal subsidy, to 7.618% in 2040, or 4.95% after the subsidy.
The bonds were priced to yield between 300 and 425 basis points over the comparable Treasury yields, and contain a make-whole call at Treasuries plus 55 basis points.
The $101.4 million tax-exempt series mature from 2014 through 2019, with yields ranging from 1.80% with a 2% coupon in 2014 to 3.45% with a 5% coupon in 2019. These bonds are not callable.
The credit is rated A1 by Moody’s Investors Service and A-plus by both Standard & Poor’s and Fitch Ratings.
Barclays Capital priced $709.2 million of taxable debt for the University of California Regents, including $700 million of taxable BABs.
The BABs mature from 2021 through 2025 with term bonds in 2031 and 2048. Yields range from 5.035% in 2021, or 3.27% after the 35% federal subsidy, to 6.548% in 2048, or 4.26% after the subsidy.
The bonds were priced to yield between 225 and 320 basis points over the comparable Treasury yields, and contain a make-whole call at Treasuries plus 50 basis points.
The credit is rated Aa2 by Moody’s and AA-minus by Standard & Poor’s.
Municipal Market Data's triple-A scale yielded 2.55% in 10 years Tuesday, nine basis points higher than Monday’s 2.46%, while the 20-year scale yielded 3.66%, 11 basis points more than Monday’s 3.55%. The scale for 30-year debt climbed 13 basis points to 4.10% Tuesday from 3.97% Monday.
Tuesday’s triple-A muni scale in 10 years was at 96.6% of comparable Treasuries and 30-year munis were at 96.9%, according to MMD, while 30-year tax-exempt triple-A general obligation bonds were at 105.9% of the comparable London Interbank Offered Rate.
The Treasury market was weaker Tuesday. The benchmark 10-year note was quoted recently at 2.67% after opening at 2.55%. The 30-year bond was quoted recently at 4.25% after opening at 4.13%. The two-year note was quoted recently at 0.46% after opening at 0.37%.
In economic data released Tuesday, wholesale inventories increased 1.5% in September, higher than expected, as businesses increased their stocks of nondurable and apparel goods.
Wholesale inventories for August were revised higher to a 1.2% increase from the 0.5% gain reported last month. Inventories have increased for nine straight months.
Wholesale sales for September increased 0.4% and sales in August were revised to a 0.5% increase from the 0.4% jump reported last month.
Economists expected wholesale inventories to rise 0.7% for the month and for sales to increase 0.6%, according to the median estimate from Thomson Reuters.
Previous Session's Activity
The most actively traded security in the state yesterday was taxable San Francisco Redevelopment Financing Agency 7.125s of 2040, which traded 43 times at a high of 102.000 and a low of 99.750.
