The municipal market remained unchanged yesterday, amid California’s issuance of $1.3 billion of general obligation bonds.
In the new-issue market yesterday, E.J. De La Rosa & Co. priced for institutions $1.3 billion of GOs for California in what is the largest scheduled deal of the week. The sale consists of $1.1 billion of new-money bonds and $194 million of refunding debt. The bonds mature in 2034, 2035, and 2039, with yields ranging from 5.55% with a 5% coupon in 2034 to 5.63% with a 6% coupon in 2039.
Tuesday, the state offered to retail investors $183.8 million of bonds that mature in 2034, with a yield of 5.5%. California’s GO debt is rated Baa1 by Moody’s Investors Service, A by Standard & Poor’s, and BBB by Fitch Ratings.
Traders said tax-exempt yields in the secondary were mostly flat. “It looks like we’ve got another big deal day on tap,” a trader in New York said. “People are continuing to focus on the new issues, and the secondary is remaining reasonably quiet. There’s not really much movement.”
“It’s fairly quiet out on the Street,” a trader in Los Angeles said. “People are interested in the new deals, and a lot of people out here sort of have their hands full with all the new Cal issuance that’s hit in the last week or so.”
The Treasury market mostly showed losses yesterday. The yield on the benchmark 10-year note opened at 3.47% finished at 3.52%. The yield on the two-year note opened at 0.92% and finished at 0.91%. The yield on the 30-year bond finished at 4.40%, after opening at 4.33%.
Yesterday’s Municipal Market Data triple-A scale yielded 3.03% in 10 years and 3.82% in 20 years, matching levels of 3.03% and 3.82%, respectively, Tuesday. The scale yielded 4.23% in 30 years yesterday, matching Tuesday’s level of 4.23%.
Elsewhere in the new-issue market yesterday, Morgan Stanley priced $400 million of taxable Build America Bonds for Pennsylvania’s Commonwealth Financing Authority. The bonds mature from 2013 through 2019, with term bonds in 2024 and 2039. Yields range from 3.38% priced at par in 2013, or 2.20% after the 35% federal subsidy, to 6.22% priced at par in 2039, or 4.04% after the subsidy. The bonds were priced to yield between 100 and 215 basis points over the comparable Treasury yield. Bonds maturing in 2013 are callable at Treasuries plus 15 basis points. Bonds maturing in 2014, 2015, and 2017 are callable at Treasuries plus 20 basis points. Bonds maturing in 2016, 2018, and 2019 are callable at Treasuries plus 25 basis points. Bonds maturing in 2039 are callable at Treasuries plus 30 basis points. And bonds maturing in 2024 are callable at Treasuries plus 35 basis points. The credit is rated A1 by Moody’s, AA-minus by Standard & Poor’s, and AA-minus by Fitch.
In economic news, the Federal Reserve policy-makers maintained their short-term lending rate in the zero to 0.25% target range, as widely expected. The Federal Open Market Committee said it continues to “anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period.”
“This statement supports the view that the Fed has absolutely no intention of raising rates for a long while and this policy stance should impart a steepening bias to the Treasury yield curve,” said John Ryding and Conrad DeQuadros, economists at RDQ.