The largest deal of the week, the four-part Los Angeles Unified School District general obligation sale, was downsized to $1.6 billion from a scheduled $1.7 billion on Thursday.
Market participants said the deal probably was reduced because municipal bond yields are too low to attract some investors. Triple A yields with a standard 5% coupon held steady Thursday at 0.33% for the two-year and 2.31% for the 10-year, and dropped by three basis points to 3.52% for the 30-year, according to Municipal Market Advisors' data.
"It's not natural to buy a 30-year muni bond in the mid-3s," a trader on the west coast said. "Even though municipal bonds should be attractive versus other fixed income assets, we're a retail market. Individuals don't have to buy 3 handle bonds."
Yields declined on the long-end according to Municipal Market Data's triple-A scale, decreasing by one basis point for bonds maturing in 16-to 26-years and by two basis points for bonds maturing in 27-to 30-years.
"The absolute levels of bonds have gotten to levels where investors don't feel like they need to invest as much as did before," the trader on the west coast said. "Fund flow levels are slowing down."
Inflows for all municipal bond funds declined to $192.27 million for the week ending June 5, down from $634.48 the previous week, according to Lipper FMI.
"We knew it was going to be a big week so pretty telling of general appetite of reinvestment money," a second trader on the west coast said. "There is a lack of activity in secondary, so I'm guessing some deals had trouble. There is nothing going on in the secondary, there are high number of bids wanted."
Yields for the $196.85 million part sale ranged from 0.12% with a 1% coupon in 2015 to 2.30% with a 5% coupon in 2022. There was no optional call for this portion of the issuance.
The $323.3 million section's yields ranged from 0.69% with a 5% coupon in 2017 to 2.89% with a 5% coupon in 2026. The bonds have an optional call at par in 2024.
The $949.1 million part has yields from 0.12% with a 1% coupon in 2015 to 3.57% with a 4% coupon in 2031, with a call option at par in 2024.
The final $153.5 million section's yields went from 1.08% with a 5% coupon in 2018 to 3.21% with a 5% coupon in 2030. This segment also has an optional call at par in 2024.
JPMorgan Securities was the lead underwriter. The bonds were rated Aa2 by Moody's and AA-minus by S&P.
JPMorgan declined to comment on why the deal was downsized.
Goldman Sachs lowered the yields on the $537 million of Houston utilities system first lien revenue and refunding bonds that were priced on Thursday.
Yields on bonds maturing in 2016 were repriced six basis points lower at 0.42%, and yields for bonds maturing in 30 years were reduced 10 basis points. Yields now range from 0.23% with a 5% coupon in 2015 to 3.71% with a 5% coupon in 2044
"They know how to get a deal done; that Texas knows how to do," a trader in New York said.
The deal is rated Aa2 by Moody's Investors Service and AA by both Standard & Poor's and Fitch Ratings.
The deal did so well because investors are hungry for utility bonds, according to market participants.
"Utility deals have momentum in this market, for sure," a trader in Chicago said.
Utility issuance as of May 31 totaled $9.85 billion, down 35.5% from the $15.27 billion issued during the same period in 2014, according to The Bond Buyer and Ipreo data.
"Essential service bonds in general typically are a little more appealing to investors than GOs because people feel those bonds support water and sewer, power and utility," a second trader in New York said.
Investors also said the reason the deal received so much demand is because market participants have a lot of cash on hand now that it is reinvestment period. Reinvestment period began on June 1 when buyers received cash from coupon payments and bonds maturing.
"Typically we don't see a ton of issuance, but with rates starting to pop up a bit, investors may be saying they've got to take advantage of [the increased amount of bonds] if [higher rates] are going to come on," the first trader in New York said. "Investors have tons of cash on hand, boatloads of money on hand."
JPMorgan priced for $314.1 million of general obligation noted for Nassau County, N.Y.
The $130 million of revenue anticipation notes has a 0.45% yield with a 2% coupon maturing in 2015.
The $114.2 million of bond anticipation notes has a 0.40% yield with a 2% coupon in 2015. The $69.9 million of revenue anticipation notes has a 0.45% yield with a 2% coupon in 2015.
None of the maturities has an optional call. The deal is rated SP-1-plus by S&P and F1 by Fitch.
Treasuries strengthened Thursday, with the 10-year benchmark falling seven basis points to 2.58% and the 30-year yield dropping six basis points to 3.41%. The two-year note slipped one basis point to 0.42%.
