California (Aa3/AA-/AA-) offered $2 billion of general obligation bonds to retail investors on Wednesday ahead of the institutional pricing on Thursday.
According to the retail pricing wire from Morgan Stanley, the 10-year GO refunding maturity with a 5% coupon was priced to yield 2.10%, down one basis point from the level on Tuesday’s premarketing scale. In recent trading, the 10-year 5s from the March sale that were priced to yield 2.31% traded in blocks on April 1 at 1.94%.
One source close to the deal told The Bond Buyer on Wednesday that the offering was going well so far.
"Right now we have $750 million in retail and when it is all said and done, I would expect it to be north of $800 million," the source said. "Seventy-five percent of the retail investors are California residents and the rest are from national investors. Typically you would see less national participation, but I think that it illustrates the demand for high-quality products. We think the momentum should carry over to tomorrow for institutions and are hopeful for lower yields and tighter spreads."
The MSRB reported that among activity traded issues on Wednesday, the California taxable Series 2009 GO 7.5s of 2034 traded 15 times on volume of $2.17 million, with 12 customers buying the GOs at a price of 143.664 cents on the dollar. The bonds were originally priced at 100.735.
Retail investors have had ample opportunity to spend idle cash and hoard tax-exempt bonds to protect their income in the aftermath of recent tax law changes, municipal experts said.
“There’s a lot of retail money, a lot of subscriptions for new deals, and a lot of bumped scales,” a New York trader said on Wednesday as California priced on the heels of the pricing a day earlier for $500 million of New York City Municipal Water Finance Authority revenue bonds.
Demand is strong and growing for new issuance as wealthy investors in high-tax states face the April 15 tax deadline.
“As long as Treasuries hang in there, inventory is light, trading accounts are light, and there is too much money and not enough bonds around, the percentages will remain snug and we will probably stay firm,” the trader said.
He said “real money” buyers have money to spend and found a unique opportunity this week with the arrival of the New York water and California GO deals — even though municipal yields have adjusted along with the recent Treasury strength. “They are still managing the transition. I can’t say retail is on fire, but municipals are pretty much a safe haven for the wealthy investors and they continue to demand paper.”
Overall, they are anxious to see more paper coming to the new issue market to satisfy the need for tax-exemption, however, he said they remain a little concerned about the next rate move.
“We could be at an inflection point in the case of lower yields,” he said. “If rates move much lower there could be some real buying pressure on the market and tighter spreads at lower yields. If you have yields drop from here, and there’s not many bonds around you could have a bond squeeze.”
In that case, investors sitting on the sidelines, he said, “might have to capitulate and come in and buy at the lower yields.”
Meanwhile, new issues are showing buyers’ resolve, according to Peter Block, managing director of credit and market strategy at Ramirez & Co. said in an April 8 report.
“The frenzied clamor for tax-exempts should maintain tight ratios and low yields through the April tax filing season and, potentially, the summer,” Block said. “Reinvestment is expected to pick up through the end of the summer, which should lend additional strength to the market.”
The NYC water deal’s 5% coupons due 2049 yielded 2.92% with a call 2029 were on parity with the long U.S. Treasury bond. California’s GO scales included a 10-year maturity at a 2.10% yield and Block noted this was about 20 basis points tighter than the state’s March sale. He said it reflected a rally in the interim that offers the state substantial savings.
“A more active session developed yesterday on heavier bid list volume and new-issue pricings,” he said of Tuesday’s market.
Secondary bid lists included several large blocks of 4% coupons in the 20- to 25-year range with four- to five-year call structures. “Among those items was a substantial yield penalty for Illinois versus New York,” he said.
A $50 million block of Aa1/AAA Schaumberg, Ill. GO 4s due 2041 (call 2023) traded at 3.12% as compared to a 2.92% yield on $27 million Aa3/AA- Port Authority NY/NJ 4s due 2042 with a call in 2024.
“Demand for New York and New Jersey names illustrates how exaggerated the market premium has become post-tax reform that a low-AA revenue credit would trade 20 basis points tighter than a AAA-rated GO,” Block said.
“The other dynamic at play is an apparent rejection of short yields below the 1.60% range and taxable-equivalent yields that fall under 2.50% that defined much of the first quarter— excluding California,” he wrote. “Volume in the 1.50% range has been more erratic and recent sessions show more names attempting to trade back above 1.60%,” he noted.
Primary market
Wells Fargo Securities priced Charlotte, N.C., (Aa2/AA+/AA+) $121.45 million of Series 2019A certificates of participation for Convention Facility projects.
Jefferies got the written award on the California Community Housing Agency’s (NR/NR/NR) $189.34 million of Series 2019A workforce housing revenue bonds for the Annadel Apartments.
BofA Securities received the official award on the Oregon State University (Aa3/NR/NR) $140 million of Series 2019 taxable GOs.
Siebert Cisneros Shank & Co. got the written award on the New York City Municipal Water Finance Authority (Aa1/AA+/AA+) $500 million of tax-exempt fixed-rate second general resolution revenue bonds
On Thursday, New York City (Aa1/AA/AA) is competitively selling $121.5 million of Fiscal 2008 Series L Subseries L-6 GOs. The financial advisors are Public Resources Advisory Group and PFM Financial Advisors. The bond counsel are Norton Rose and Bryant Rabbino.
Wednesday’s bond sales
Bond Buyer 30-day visible supply at $6.98B
The calendar fell $1.57 billion to $6.98 billion on Wednesday, composed of $1.92 billion of competitive sales and $5.07 billion of negotiated deals.
ICI: Muni funds see $1.5B inflow
Long-term municipal bond funds and exchange-traded funds saw a combined inflow of $1.492 billion in the week ended March 27, the Investment Company Institute reported on Wednesday.
It was the 13th straight week the funds saw inflows and followed an inflow of $2.356 billion into the tax-exempt mutual funds in the previous week.
Long-term muni funds alone saw an inflow of $1.453 billion after an inflow of $2.032 billion in the previous week; ETF muni funds alone saw an inflow of $39 million after an inflow of $324 million in the prior week.
Taxable bond funds saw combined inflows of $9.783 billion in the latest reporting week after inflows of $5.528 billion in the previous week.
ICI said the total combined estimated outflows into all long-term mutual funds and ETFs were $778 million after outflows of $3.259 billion in the prior week.
Secondary market
Munis were mixed on the MBIS benchmark scale Wednesday, which showed yields rising less one basis point in the 10-year muni and falling one basis point in the 30-year maturity. High-grade munis were also mixed, with yields gaining a basis point in the 10-year maturity while declining less than one basis point in the 30-year maturity.
On Refinitiv Municipal Market Data’s AAA benchmark scale, the yield on the 10-year GO muni was unchanged while the 30-year muni yield fell two basis points.
The 10-year muni-to-Treasury ratio was calculated at 77.6% while the 30-year muni-to-Treasury ratio stood at 92.1%, according to MMD.
Treasuries were stronger as stocks traded lower.
“The ICE Muni Yield Curve is one basis point lower from 2039 and longer,” ICE Data Services said in a Wednesday market comment. “The tobacco sector is flat to one basis point lower in yield, but the high-yield sector is at similar levels as the previous session without a clear direction. The taxable market is 2.5 basis points lower in yield from the five-year through the 10-year.”
Previous session's activity
The MSRB reported 40,640 trades Tuesday on volume of $12.74 billion. California, New York and Texas were most traded, with the Golden State taking 14.12% of the market, the Empire State taking 13.345% and the Lone Star State taking 10.079%. The most actively traded issue was the BART Series 20167 S7 revenue 4s of 2047 which traded seven times on volume of $32.5 million.
Treasury sells $24B re-opened 10-year notes
The Treasury Department auctioned $24 billion of 9-year 10-month notes with a 2 5/8% coupon at a 2.466% high yield, a price of 101.377878. The bid-to-cover ratio was 2.55.
Tenders at the high yield were allotted 93.21%. All competitive tenders at lower yields were accepted in full. The median yield was 2.425%. The low yield was 2.088%.
Gary E. Siegel contributed to this report.
Data appearing in this article from Municipal Bond Information Services, including the MBIS municipal bond index, is available on The Bond Buyer Data Workstation.
