Market Close: Cali Upsized; Spreads Even With March Sale

The tax-exempt market kept its eyes on California's $2.72 billion institutional pricing Thursday as the deal was upsized due to demand.

Still, yields were raised as much as four basis points from retail pricing, but spreads to the Municipal Market Data scale came in on par with the state's previous bond sale in March.

"Strong demand led the state to increase the size of its general obligation bond sale by $668 million, to $2.72 billion from $2.05 billion," said Tom Dresslar, spokesman for state Treasurer Bill Lockyer.

He added the upsizing came entirely from the refunding portion of the deal.

"The deal seems to be going OK," a Los Angeles trader said. "We are waiting to see how it goes with allocations but we submitted a few bids and are hearing good things."

He added the rest of the muni market was on standby. "The market is really focused on California and there is not a lot else trading." He said the market was trading steady as dealers waited to see how California priced.

Bank of America Merrill Lynch and Morgan Stanley priced for institutions $2.72 billion of California various purpose general obligation bonds, rated A1 by Moody's Investors Service, A by Standard & Poor's, and A-minus by Fitch Ratings.

Retail bought 37.7% of the total offering, or 72.3% of the $1.07 billion offered for retail. The state last came to market March 14 with $2.11 billion of tax-exempt GOs. Retail bought 37.7% of that deal and 89.4% of what was offered for retail.

Yields on the first series of $1.25 billion ranged from 0.16% with a 4% coupon in 2013 to 4.02% with a 4% coupon and 3.76% with a 5% coupon in a split 2043 maturity. The bonds are callable at par in 2023. Yields were raised as much as four basis points from retail pricing Wednesday.

Spreads on bonds with 5% coupons maturing between 2016 and 2042 ranged from 23 basis points to 79 basis points above Wednesday's Municipal Market Data scale.

The last time the issuer came to market with various purpose GOs on March 14, spreads on 5% coupons ranged from 27 to 79 basis points above the previous day's MMD scale.

Yields on the second series of $1.47 billion of refunding bonds ranged from 0.16% with 4% coupon in 2013 to 3.44% with a 5% coupon in 2033. The bonds are callable at par in 2023 except for those maturing in 2023. Bonds maturing in 2024, 2025, and 2029 are callable at par in 2018.

Bonds with a 5% coupon maturing between 2016 and 2033 had spreads ranging from 23 to 80 basis points above Wednesday's MMD scale.

The last time California came to market on March 14 with various purpose GO refunding bonds, spreads ranged from 27 to 83 basis points above the previous day's MMD scale.

Outside the California deal, traders said the market felt weaker. "It's down a touch," a New York trader said. "It's due to supply. There are lots of bonds in the secondary."

Still, other traders said that while yields have been increasing slowly over the past few days, bonds haven't weakened enough to provide real value. "I like kicker bonds and those are in high demand and it's hard to find stuff that represents any value," a second New York trader said. "Right now I am focused on the secondary because the primary is not giving me the structure I like."

He added that in the primary, he is finding big premiums or a low coupon bond at par. "It's hard to find value and a few basis points here or there do not have a big impact. It's business as usual but not in a fun way."

The remainder of the new issues priced Thursday. Morgan Stanley priced $750 million of California Health Facilities Financing Authority revenue bonds for Sutter Health. The bonds are rated Aa3 by Moody's and AA-minus by Standard & Poor's and Fitch.

The pricing of $450 million of tax-exempt revenue bonds, yielded 4.00% with a 5% coupon in 2052. The bonds are callable at par in 2023.

Pricing information on the $300 million of taxable bonds was not available by press time.

Ramirez & Co. priced $200 million of New York Triborough Bridge and Tunnel Authority general revenue bonds, rated Aa3 by Moody's, AA-minus by Standard & Poor's and Fitch, and AA by Kroll Bond Ratings.

Yields ranged from 0.30% with a 2% coupon in 2014 to 3.80 with a 3.75% coupon in 2043. The bonds are callable at par in 2023. Yields were lowered one basis point from preliminary pricing on maturities between 2015 and 2020.

In the secondary market, trades compiled by data provider Markit showed the market was weaker by two to three basis points.

Municipal bond scales ended as much as two basis points weaker Thursday after softer sessions Tuesday and Wednesday.

Yields on the MMD triple-A GO scale as much as two basis points higher. The 10-year and 30-year yields were flat at 1.74% and 2.97%, respectively. The two-year closed steady at 0.29% for the fifth straight session.

Yields on the Municipal Market Advisors 5% coupon triple-A benchmark scale also ended as much as two basis points higher. The 10-year yield increased one basis point to 1.81%. The 30-year yield was steady at 3.06% for the second session and the two-year was steady at 0.32% for the fifth session.

Treasuries were slightly stronger Thursday after posting losses earlier in the week. The benchmark 10-year and 30-year yields fell one basis point each to 1.80% and 3.00%, respectively. The two-year was steady at 0.23%.

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