After selling a whopping $3.2 billion of bonds to retail investors in less than two days of the retail order period, California yesterday afternoon accelerated the institutional pricing and increased the size of its general obligation deal to $6.5 billion from the original $4 billion. The bonds were priced for institutions one day early to meet overwhelming demand amid the backdrop of a largely unchanged municipal market.

California's $6.5 billion deal -priced by co-senior managers Citi and Merrill Lynch & Co. - marks the largest new issue to enter the market since Ohio's Buckeye Tobacco Settlement Financing Authority sold $5.53 billlion in 2007. California has been out of the market since June; its budget and cash-flow crises created a backlog of projects requiring financing. The deal matures from 2013 through 2029, with term bonds in 2033, 2036, and 2038.

Yields range from 3.20% priced at par in 2013 to 6.10%with a 6.00% coupon in 2038. The bonds are callable at par in 2019.

California last week was hit by one-notch downgrades from Moody's Investors Service, which dropped it to A2, and Fitch Ratings, which lowered it to A. Last month, Standard & Poor's downgraded the state to A.

"What's happened with the deal is a riot," a trader in Los Angeles said. "It's kind of a funny period of time to be seeing this much retail and institutional demand. And we all know there's going to be more product coming. I don't think it's concentrating so much on the Government market as it is on the fact that the retail people in California think that it is good value.

"So they're all over it. We have more people that want bonds all up and down the scale where there are no more orders, so there's going to be a good after market in the serials, but I suspect also on the 2038 term, which is probably all going to be done institutionally. I think it's just a great deal," the trader said.

In the secondary market, traders said tax-exempt yields were mostly flat.

"We've seen good demand all day long," a second trader in Los Angeles said. "It's been the quality issues, the not so high quality issues. That indicates that there's activity in the marketplace, and people are still feeling that it's a very volatile marketplace, versus a marketplace that's destined to go down."

In other new-issue market activity, JPMorgan priced $475 million of revenue bonds for the Illinois Finance Authority, in two series. Bonds from the $371.8 million series A mature from 2009 through 2019, with term bonds in 2024, 2030, 2039. Yields range from 1.95% with 3% coupon in 2010 to 6.20% with 6% coupon in 2039. Bonds maturing in 2009 will be decided via sealed bid.

Bonds from $103.1 million series B mature from 2009 through 2011, and from 2014 through 2019, with term bonds in 2024, 2030, and 2039. Yields range from 1.95% with a 3% coupon in 2010 to 6.30% with a 6% coupon in 2039. All bonds are callable at par in 2019, except series B bonds maturing in 2039. The bonds are callable at par in 2014. The credit is rated Aa2 by Moody's and AA-plus by Standard & Poor's.

Goldman, Sachs & Co. priced $362.5 million of clean water and drinking water revolving funds revenue bonds for the New York State Environmental Facilities Corp. The bonds mature from 2010 through 2030, with term bonds in 2034 and 2038. Yields range from 1.00% with a 2% coupon in 2010 to 5.32% with a 5.125% coupon in 2038. The bonds, which are callable at par in 2019, are rated Aa1 by Moody's and AA-plus by both Standard & Poor's and Fitch.

Siebert, Brandford, Shank & Co. priced $236.9 million of airport system revenue bonds for the Metropolitan Washington Airports Authority, which were not subject to the alternative minimum tax. The bonds mature from 2010 through 2026, with term bonds in 2029. Yields range from 1.32% with a 3% coupon in 2010 to 5.27% with a 5% coupon in 2029. Bonds maturing from 2010 through 2016 were not insured, bonds maturing from 2017 through 2020 were all insured by Berkshire Hathaway Assurance Corp., and the remaining bonds were split evenly at approximately $31 million each as insured and uninsured. The underlying credit is rated Aa3 by Moody’s, AA-minus by Standard & Poor’s, and AA by Fitch.

Arizona's Maricopa County Community College District competitively sold $220 million of GO bonds to Barclays Capital, with a net interest cost of 4.01%. The bonds mature from 2010 through 2023, and are callable at par in 2019. None of the bonds were formally re-offered. The credit is rated triple-A by all three major ratings agencies.

Milwaukee competitively sold $116 million of GO cash-flow promissory notes to two bidders. JPMorgan won the largest chunk, worth $66 million, with a true interest cost of 0.45%. Barclays won the remaining $50 million with a TIC of 0.44%. The notes mature in Dec. 2009 with a 1.25% coupon. The notes were not formally re-offered. The credit is rated MIG-1 by Moody's, SP-1-plus by Standard & Poor's, and F1-plus by Fitch.

The Treasury market showed some losses yesterday. The yield on the benchmark 10-year note, which opened at 2.65%, finished at 2.70%. The yield on the two-year note was quoted near the end of the session at 0.93% after opening at 0.89%. The yield on the 30-year bond, which opened at 3.65%, was quoted near the end of the session at 3.77%.

As of Monday's close, the triple-A scale in 10 years was at 119.9% of comparable Treasuries, according to Municipal Market Data. Additionally, 30-year munis were 131.4% of comparable Treasuries. Also, as of the close Monday, 30-year tax-exempt AAA-rated general obligation bonds were at 144.2% of the comparable London Interbank Offered Rate.

The economic calendar was light yesterday.

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.