Investors continue to snap up this week's largest deals, as overall issuance remains weak.
Morgan Stanley completed the institutional sale for the $794.4 million California State Public Works Board's issuance on Thursday after retail investors purchased 40.4% of the offering on Tuesday.
"We are very pleased with the results," Tom Dresslar, a spokesman for the California state treasurer, said in an email.
The Public Works Board's bonds were the most highly traded California bond, accounting for 24.4% of trades, and 1,999.8% above their 100-day average, according to data provided by Bloomberg.
"It seems like it will be well received, well accepted," a trader in New York said earlier Thursday.
The deal came during a period of low issuance. This year there have been $33.66 billion in bond sales for January and February 2014 compared with $51.68 billion for the same period in 2013, according to The Bond Buyer.
Last week's issuance totaled $3.18 billion, and this week's is scheduled to be about $1 billion more.
Demand for the California deal may have been bolstered by 2014's weak issuance and improvements in the state's financial and economic outlook, Tom Dalpiaz, managing director at Granite Springs Asset Management, said early on Thursday.
The bonds were rated A2 by Moody's Investors Service, and A-minus by Standard & Poor's and Fitch Ratings. In its credit report Moody's explained the rating was below California's rating because the bonds are secured by lease rental payments made by state agencies, which are vulnerable to abatement risk. These payments are subject to annual state legislative appropriates.
"The A2 rating reflects strong legal mechanisms for lease payments in spite of some abatement risk, the weaker security provided by lease revenue bonds relative to the state's general obligation debt, and the credit standing of the State of California, whose general obligation debt is rated A1 with a stable outlook," Moody's said in the report.
The bonds carry a stable outlook from Moody's and Fitch, and a positive outlook from S&P.
"I was surprised by the spread for the deal," Dalpiaz said. "I recall when California state GOs were trading much wider than what they traded at this week. Two years ago the spread for California deals was much, much wider."
Yields ranged from 0.96% with a 3% coupon in 2017 to 4.36% with a 5% coupon in 2039. The bonds are callable at par in 2024 with two sinking fund term bonds in 2039.
The Public Works Boards' issuance was the second largest this week after the city of Atlanta's three-part $852.8 million airport revenue refunding bonds that came to market Tuesday.
Georgia bonds jumped up to the third most traded state bonds by late Thursday afternoon, occupying 12.68% of the market as they traded 769.8% above their 100-day average, according to Bloomberg data.
Atlanta's new bonds were the most heavily traded, accounting for 95.14% of the trades, according to Bloomberg data.
It was a three-part issuance that was $147.2 million more than originally scheduled. Yields on the $523.6 million of subordinate lien general revenue refunding bonds ranged from 3.12% with a 5% coupon in 2024 to 4.06% with a 5% coupon in 2034.
Yields on $144.1 million of airport general revenue refunding bonds ranged from 0.87% with a 3% coupon in 2017 to 3.91% with a 5% coupon in 2033. Yields on $185.1 million of AMT airport general revenue refunding bonds ranged from 0.20% with a 2% coupon in 2015 to 3.99% with a 5% coupon in 2029. All three series of bonds are callable at par in 2024.
The Commonwealth of Virginia issued a two-part deal totaling $133.8 million, which was increased from $128.3 million. Yields on $69 million of GO bonds ranged from 0.15% with a 2% coupon in 2015 to 3.5% with a 4% coupon in 2034. The bonds are callable at par in 2024. Yields on $64.8 million of refunding bonds ranged from 0.15% with a 2% coupon in 2015 to 1.68% with a 5% coupon in 2020. The bonds do not have an option call.
On Thursday $237.9 million Orlando, Fla., contract tourist development tax payment revenue bonds were priced for institutions, following Wednesday's retail period. Yields ranged from 0.59% with a 4% coupon maturing in 2016 to 4.19% with a 5% coupon maturing in 2044. The bonds are callable at par in 2024 with a lot sinking fund term bond in both 2039 and 2044. The bonds received a Aa2 rating from Moody's and AA-plus from Fitch.
Municipal bond yields eased Thursday, with maturities ranging from 2020 to 2021 falling as much as two basis points. Yields on bonds maturing beyond 2022 slid as much as four basis points, while the short end of the curve was unchanged, according to the Municipal Market Advisors scale.
After rising for six-straight days, yields on bonds maturing in five to 17-years declined as much as five basis points Thursday, according to the Municipal Market Data triple-A scale.
Treasury yields softened Thursday, as the 30-year yields and the two-year notes fell by one basis point each at 3.52% and 0.45%, respectively. The 10-year benchmark was unchanged at 2.68%.
