Market Post: In Test of Demand, New Issues Oversubscribed on Largest Deals

A firmer tone in the municipal bond market held up in the midst of the largest deals of the week pricing for institutions Wednesday and traders said new issues were oversubscribed, passing a test of demand.

In the largest deal, Barclays priced for institutions nearly $2.6 billion of Regents of the University of California general revenue bonds, rated Aa1 by Moody's Investors Service, AA by Standard & Poor's, and AA-plus by Fitch Ratings. The first pricing of $1.15 billion included two series, $546.9 million and $600 million of tax-exempt bonds.

Yields on the first series of $546.9 million ranged from 4.15% with a 4% coupon in 2031 to 4.60% with a 4.5% coupon and 4.34% with a 5% coupon in a split 2038 maturity. The bonds are callable at par in 2023.

A Los Angeles trader said the 2038 term was oversubscribed for and yields were lowered four basis points.

The second series of $600 million was priced to yield 3.10% with 5% and 3.25% coupons in a split 2048 maturity. The bonds had a mandatory put in 2023. "The 5% coupon was by far where demand was," this trader said.

Prices were not yet available on $700 million of taxable bonds and $600 million of variable rate demand bonds.

"As far as I know the rest of the deal got done," he said. "The rest of the market is firming again. It feels good. The calendar is still light. But otherwise, we'd like to see the outflows stop. It feels like there is more of a bid side and deals are oversubscribed."

In other primary market deals, Siebert Brandford Shank & Co. priced for institutions $900 million of New York City general obligation bonds, following a two-day retail order period. The bonds are rated Aa2 by Moody's and AA by Standard & Poor's and Fitch.

Yields on the first series of $300 million ranged from 0.80% with a 3% coupon in 2016 to 4.18% with a 5% coupon in 2033. The bonds are callable at par in 2023. Bonds maturing in 2015 were offered via sealed bid.

Yields on bonds were lowered between two and six basis points from the second retail pricing Tuesday, though yields on bonds maturing between 2019 and 2021 were raised one to three basis points. Bonds had already been lowered one and two basis points from the first retail order period on bonds maturing between 2025 and 2033.

Yields on the second series of $179 million ranged from 0.80% with a 4% and 5% coupon in a split 2016 maturity to 2.29% with a 4% and 5% coupon in a split 2020 maturity. Yields on bonds maturing in 2018 were lowered two basis points while yields on bonds maturing in 2019 and 2020 were raised three basis points from retail pricing.

In institutional pricing, the issuer added two additional series, including $363.9 million and $56.1 million of fiscal 2014 bonds.

Yields on the first series of $363.9 million ranged from 0.80% with a 5% coupon in 2016 to 4.18% with a 5% coupon in 2033 and are callable at par in 2023. Bonds maturing in 2015 were offered via sealed bid.

Yields on the second series of $56.1 million ranged from 0.80% with a 3% coupon in 2016 to 4.30% with a 4.25% coupon in 2032 and are callable at par in 2023. Bonds maturing in 2014 and 2015 were offered via sealed bid.

BMO Capital Markets won the bid for $125 million of New York City taxable GOs. Prices were not available by press time.

On Tuesday, yields on the triple-A Municipal Market Data scale ended as much as five basis points lower. The 10-year yield fell three basis points to 2.56% and the 30-year yield dropped four basis points to 4.13%. The two-year was steady at 0.36% for the third session.

Yields on the Municipal Market Advisors scale ended as much as four basis points lower. The 10-year and 30-year yields slid four basis points each to 2.70% and 4.25%, respectively. The two-year was steady at 0.54% for the fourth consecutive trading session.

The Treasury yield curve flattened with yields rising on the short-end and falling on the long-end. The two-year yield increased two basis points to 0.35% and the benchmark 10-year yield fell two basis points to 2.64%. The 30-year was steady at 3.67%.

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