The $140 million Ventura County, Calif., tax and revenue anticipation notes received strong demand on Monday, investors said.
J.P. Morgan Chase won the bid with an effective rate of 0.126% and a 1.5% coupon.
"There is plenty of demand for California paper," a trader in Florida said.
The deal was rated MIG1 by Moody's Investors Service.
"I'm sure that [California debt] will be in demand," a trader in California said.
Market participants say deals like Ventura County issuance are attractive because they don't issue as often as the state. Fred Bacani, head of Fixed Income and Trading at Veritable LP in Newtown Square, Pa., said in an interview there is some value in subordination, buying bonds from a state's lesser-known municipalities or buying debt other than state GOs.
The Ventura County notes allow investors to get California paper on their portfolios and increase their diversity.
"During a typical cycle when you get low volume and lower rates, you get a spread compression," the trader in California said. "There is an incremental yield difference between the California GO name and names without much sponsorship. People tend to look away from [the most familiar] name."
The trader added, although several California deals are scheduled this week, it will not lower the demand for any single deal.
"I don't think the calendar is big enough to overwhelm the California market," he said. "Especially because California investors buy California bonds, and [the California government] loves to raise taxes in California. The California paper coming to market is not big enough to lessen investors' demand for California paper."
Besides the Ventura County deal, Los Angeles County plans to sell $900 million in tax and revenue anticipation notes on Wednesday.
Kern County is scheduled to auction $200 million revenue appreciation notes on Thursday. Bank of America Merrill Lynch on Thursday is expected to price $143 million Los Angeles County Regional Financing Authority mortgage loan insurance bonds on behalf of Montecedro.
The number of large competitive deals scheduled for auction this week climbed from the past two weeks' issuance because it's an ideal new-issue market, market participants said.
There are four competitive deals expected this week that total over $100 million, led by the $274 million Metro Atlanta Rapid Transportation Authority revenue bonds scheduled for Thursday and the $258 million Columbus, Ohio, bonds on Wednesday.
"There is an uptick in competitive deals," a trader in Chicago said. "Competitive deals are coming because it's an attractive new issue market."
Janney Capital Markets wrote in a report released on Monday the current market is attractive for issuers because interest rates have dropped most of the calendar year to date.
"So far, 2014 could be called a year for issuers," Tom Kozlik, municipal credit analyst at Janney Capital Markets, wrote in the report. "Funding costs remain low from a relative perspective. If interest rates continue to fall as they mostly have in 2014, then the new issuance calendar could start to build at a quicker pace than in recent months."
The trader in Chicago mentioned that more competitive deals may be up for auction because June starts the reinvestment period, where buyers are sitting on cash they received from coupon payments and maturities.
"Reinvestment period is a factor [in more competitive deals coming to market]," he said. "June 1 and July 1 are big interest payment dates."
Back in April and early May many investors had said they stopped looking at competitive deals because they were priced aggressively with incredibly low yields. The trader in Chicago said buyers had really "stepped up and paid some big prices" in those months.
The trader in Florida sees this trend continuing. "[Competitive deals coming to market] will be priced aggressively without a doubt," he said.
The largest long-term bond pricing scheduled for this week is a $431.2 million sale of certificates of participation from the Regional Transportation District of Colorado. The second biggest negotiated deal is the $340 million toll system refunding revenue bond from the Miami-Dade County Expressway Authority.
Treasuries weakened Monday afternoon, with 30-year yields climbing six basis points to 3.39% and the 10-year benchmark jumping seven basis points to 2.54%. the two-year note inched up two basis points to 0.40%.
