The $1.4 billion San Francisco Bay Area Toll Authority revenue bond pricing will set the bar for the rest of the deals coming to market this week.
The $1.2 billion chunk of the two-part deal came in three series all maturing in 2047 and priced at par.
The $247.8 million portion yields 1.00%, with a mandatory tender date of April 3, 2017. $123.9 million of this part of the issuance is available to institutions and these bonds have an optional call at par in 2016.
The $552.6 million series was priced to yield 1.5%. There is a mandatory tender date on April 2, 2018. $276.3 million of this section is available to institutional buyers and the bonds have an optional call in 2017 at par.
The final $402.5 million part yields 1.875% with a mandatory tender date on April 1, 2019. $201.3 million of this series is available for institutional sale, and the bonds have an optional call in 2018.
The second part of the deal, $200 million, had one maturity in 2054 and was priced to yield 4% with a 5% coupon. The bonds have an optional call at par in 2024.
Bank of America Merrill Lynch was the lead underwriter for the entire deal.
The bonds carry ratings of Aa3 from Moody's Investors Service, AA from Standard & Poor's and AA-minus from Fitch Ratings.
"The market had some weakness last week due to the Puerto Rico troubles," a trader in New York said. "Deals that came yesterday were priced with a bit of a wide spread because of that. But yields barely moved yesterday, and looked stable this morning so this pricing is right on the dot."
Yields on benchmark municipal bonds rose across the curve for three days straight last week, driven by bonds from Puerto Rico and the commonwealth's various organizations and authorities selling off following credit downgrades from the three major rating agencies.
On Monday, yields held steady through most of the curve with the two-year and 10-year remaining stable at 0.32% and 2.34% respectively, according to Municipal Market Advisors' data. The 30-year yield rose by one basis point to 3.51%
Yields opened steady across the curve on Tuesday morning, according to Municipal Market Data's triple-A scale.
"Issuances the rest of the week will probably come a bit more aggressively than ones sold on Monday," the trader in New York said.
"There is plenty of cash out there for this deal, because [California] is a high net worth state," a trader in Florida said.
The market did not react to her speech, however. Yields held steady across the curve on Tuesday according to Municipal Market data's triple-A scale, the same as they had on Monday.
The deal appeals to investors because it offers buyers a place to park their cash for the short-term.
"The Bay Area Toll Authority deal is a put deal, so it will be short, and there has not been enough short California lately so it will do well," the trader in Florida said.
California, which has sold $19.6 billion of long-term debt so far this year, ranks second to Texas in state issuance as of June 30, according to data provided by The Bond Buyer.
However, the short-term debt has generally come from note deals, such as $1.36 billion June L.A. tax and revenue note deal. Short-term note deals are not included in The Bond Buyer volume number.
"Investors are interested in short California in general," the trader in Florida said. "There's too much cash out there and people want to park it inside of 10 years."
Investors have a good amount of cash on hand from payments they have received during the June and July reinvestment period. During reinvestment period market participants get cash from coupon payments and bonds maturing.
Investors are particularly starved for larger deals this week because issuance has remained low the past two weeks, totaling $2.84 billion and $3.3 billion in the weeks sandwiching the July 4th holiday, according to data provided by The Bond Buyer and Ipreo.
Potential volume for this week is $5.9 billion.
A trader in Dallas also said the BATA bonds will receive demand because the structure is "unique" for such a large deal.
"You see the structure down in Texas on some school district bonds, but don't see it in the general market much," he said. "And Bay Area Toll Authority is a good name, so it will get attention. Bay Area Toll Authority has never come with that structure before."
Also on Tuesday morning Federal Reserve Chairwoman Janet Yellen gave her semi-annual testimony before the Senate Banking Committee.
Yellen said the Fed's highly accommodative monetary policy "remains appropriate" and the target range for the federal funds rate has remained at zero to 0.25%.
The large-scale asset purchases remain appropriate because labor market participation is still lower than expected, and there has been slow growth in hourly compensation.
Market participants had said they would be keeping an eye on her speech, especially because the Federal Open Market Committee meeting minutes released last week showed the Federal Reserve's tapering will likely be completed in October, assuming economic conditions allow, rather than in December. There had been some question as to whether the Fed would end by cutting $15 billion in October or cut $10 billion in October and the final $5 billion in December.
Morgan Stanley priced $250 million of Kansas Department of Transportation revenue bonds to yield from 2.54% in 2025 to 2.96% in 2030. The coupon on all maturities is 5%. The deal is rated Aa2 by Moody's and AA-plus by Fitch.
In the competitive market, the Colorado General Fund auctioned $500 million of tax and revenue anticipation notes on Tuesday. The deal is rated MIG1 by Moody's and SP-1-plus by Standard & Poor's.
Bank of America won the bid for $100 million of the note deal, with an effective rate of 0.11% and a 3% coupon. Barclays Capital won the bid for $100 million with an effective rate of 0.110920% and a 1% coupon. JPMorgan won the bid for $200 million with an effective rate of 0.116680% and a 1.5% coupon. Morgan Stanley won the bid for $100 million with an effective rate of 0.114970% and a 2% coupon.
There is no optional call for the bonds.
