Goldman Sachs lowered the yields on the $537 million 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 generally 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."
The four-part L.A. Unified School District general obligation deal was downsized to $1.6 billion from a scheduled $1.7 billion when J.P. Morgan priced it on Thursday. Yields for the $196.85 million part 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.
J.P. Morgan was the lead underwriter and the bonds were rated Aa2 by Moody's and AA-minus by S&P.
Municipal bond yields held steady on Thursday throughout the curve, after rising every day this week, according to Municipal Market Data.
Treasuries were mostly steady Thursday morning, with the 30-year yield and the two-year note remaining at 3.47% and 0.43%, respectively, from Wednesday's market close. The 10-year benchmark fell two basis points to 2.63%.
Treasuries' yields fell on Thursday with the 30-year declining by five basis points to 3.42%, the 10-year by three basis points to 2.6% from Thursday morning. The two-year note held steady at 0.43%.
