NEW YORK – California’s first general obligation issue of 2011 is being grabbed up by retail investors but yields in the broader market are pretty much unchanged despite a major rally in the Treasury market.
A new pricing wire for California’s GO deal, with $2.5 billion up for sale, shows yields are unchanged from Friday’s levels.
“The levels are the same but they aren’t taking orders on the serial bonds to 2021, where the majority of retail demand is, so it looks like they are getting eaten up pretty fast,” said a trader in San Francisco. “We’re wondering if there will be any serial bonds for the institutional buyers.”
Rated A1 by Moody’s Investors Service and A-minus by Standard & Poor’s and Fitch Ratings, the new-money portion of the deal is being sold with yields ranging from 1.13% in 2015 to 4.80% in 2041.
California’s 10-year spot yields 3.17% on a 3.25% coupon, offering a ratio of 188% to the 10-year Treasury.
More than 30 underwriters are working to sell the bonds, led by Bank of America Merrill Lynch and Stone & Youngberg.
About half the deal was offered Friday. Orders are now being accepted for 2017, 2018, 2021 and 2022 of the refunding series, and for the 2032 maturity of the new-money series.
The refunding deal offers yields from 0.67% in 2013 to 4.58% in 2031.
No other major deals have hit the wires.
A mid-morning read from Municipal Market Data shows yields dropping one to two basis points for long-term bonds. The scale is flat for bonds maturing between 2013 and 2030.
A giant rally in Treasuries is making muni-Treasury ratios more attractive than last week.
The benchmark 10-year Treasury yield is now 12 basis points lower than its Friday close, at 1.94%. The 30-year yield is 13 basis points firmer at 3.19%, and the two-year yield is two basis points firmer at 0.15%.
The 10-year ratio is at 110% – easily high enough to draw in crossover buyers – versus 102.9% on Friday.
MMD analyst Randy Smolik suggests that even though ratios are quite attractive, dealers aren’t in buying mode.
“Dealers seemed focused on freeing up capital ahead of this week's hefty calendar of $7.3 billion tax-exempts,” he wrote. “With third quarter end looming, it could be another reason why the street was cautious.”
New issuance is on the rise, with The Bond Buyer’s 30-day supply just under $11 billion. The end of the quarter, when dealers want to book profits, is two weeks away. And yields, though attractive versus Treasuries, remain ugly by nominal standards.
“The expectation is we’ll do good today,” another California trader said. “We have support from Treasuries.”
Munis were weaker in the final days of last week but traded at record highs earlier.
The 10-year muni yield finished at 2.13%, up six basis points from the all-time low recorded earlier in the week. It remains nine basis points lower than at the start of the month.
The 30-year yield stood still at 3.70%, four basis points higher on the week but 18 basis points under the Sept. 1 level.
