A $750 million California general obligation competitive deal is set to prop up the municipal primary calendar Tuesday. The muni market is coming off the lowest week of issuance since Feb. 20, with just $2.05 billion of new bonds offered last week, and buyers are hungry for fresh paper.
"I think there are still a lot of people out there that will reach for a little bit of yield," a New York-based trader said in an interview. "I want to see how California and Illinois do."
The California deal consists of $575 million of tax-exempt bonds and $175 million of taxable bonds.
"The sale comes on the heels of positive revenue reports that have beat budgeted estimates in recent months and consistent improvements in economic indicators throughout the state," Elizabeth Foos, a municipal credit analyst at Morningstar, said in a report Monday.
The California deal is the state's second GO issuance this year. In March, the state issued $1.79 billion of GOs that were predominately taken by retail buyers. Retail orders that took up at least 66% of the offering enabled the state to reprice bonds and sell 5% coupons in 2043 with a yield of 4.22%.
"As the economy has recovered and revenue has exceeded expectations, California spreads have narrowed, with some analysts anticipating an upgrade in coming month," Alan Schankel, managing director at Janney Capital Markets, wrote Tuesday morning.
Total municipal volume this week could reach $7.48 billion, according to data from Ipreo and The Bond Buyer. Issuance in the prior week was just $2.05 billion.
"I think the market could use some issuance," the trader in New York said. "It was very slow again yesterday but today it feels like there's a little bit more going on."
Bond yields were steady to weaker Tuesday morning, according to Municipal Market Data's AAA scale, with yields on maturities between 2019 and 2031 rising as much as two basis points.
Treasuries were mostly unchanged, with the 10-year benchmark yield up one basis point to 2.73%, and the 30-year bond down a basis point to 3.52%. Two-year yields rose one basis point to 0.41%.
