The municipal market was mixed yesterday, as New York City and California followed extremely successful retail order periods by pricing for institutional investors deals significantly larger than planned for earlier this week.
Although the market was not necessarily firmer, traders said it showed improvement from the declines of recent days.
"I think we're seeing some stability," a trader in Chicago. "For the time being there's still wood to chop, but we're seeing some business done at some realistic levels, which is better than we've been seeing. We were getting crushed."
In the new-issue market, Banc of America Securities LLC priced for institutional investors what remained of a $5 billion sale of revenue anticipation notes for California.
A $1 billion piece maturing in May 2009 yielded 3.75% on a 5.50% coupon, while a $3.5 billion piece maturing in June 2009 yielded 4.25% on a 5.50% coupon. Both yields came in at the low end of the ranges set in a retail pricing wire Wednesday.
California Wednesday added $500 million to the originally slated $4 billion deal due to strong retail demand, before adding another $500 million early yesterday once it believed institutional demand would support it. Retail investors purchased 78.4%, or $3.92 billion, of the notes, breaking the previous record of 50% set during a $1.75 billion general obligation bond sale earlier this year.
The credit is rated MIG-1 by Moody's Investors Service, SP-1 by Standard & Poor's, and F1 by Fitch Ratings.
California plans to come to market to cover the remaining $2 billion of its cash-flow borrowing needs later in the year.
"The success of this deal far surpassed all expectations," California Treasurer Bill Lockyer said in a statement.
"Californians stepped up and invested in record numbers, showing their faith in the state's strong credit. We also performed well among institutional buyers. Most important, the transaction safeguards the state's ability to pay for services that educate our children, and keep our residents safe and healthy."
In another deal benefiting from strong retail demand, Morgan Stanley yesterday priced $550 million of tax-exempt and taxable bonds for New York City for institutional investors. Although the city postponed the deal on Tuesday, it priced and then increased the size of the offering following strong demand from retail and institutional investors. The city Wednesday priced for retail $200 million, and has since received $432 million worth of retail orders.
The bonds mature from 2010 through 2018, with term bonds in 2023 and 2028. Yields range from 3.25% priced at par in 2010 to 6.40% with a 6.25% coupon in 2028. These bonds are callable at par in 2018.
The credit is rated Aa3 by Moody's, AA by Standard & Poor's, and AA-minus by Fitch. The deal also contains a $50 million taxable component, which matures in 2019 and is not callable.
In addition, JPMorgan priced for retail investors $200 million of New York's Metropolitan Transportation Authority transportation revenue bonds. The authority had said Tuesday it planned to postpone the deal, originally slated for $500 million, due to unfavorable market conditions.
The Series 2008C bond mature 2009 through 2013, with term bonds in 2018, 2023 and 2028. Yields range from 3.40% with a 4% coupon in 2010 to 6.40% with a 6.25% coupon in 2028. The bonds, which are callable in 2018, are rated A2 by Moody's, and A by Standard & Poor's and Fitch.
The two-day retail offer period will conclude today with the deal set to close Oct. 23.
Traders said the new issues could help add some stability to the market, which has suffered amid a broader credit crisis the past month. The ratio between triple-A rated, 30-year GOs and 30-year Treasuries has reached 139.95% yesterday, its highest point ever, according to Municipal Market Data.
Since Sept. 18, more than 200 bond and note sales, both competitive and negotiated, totaling more than $11 billion, have been rescheduled for later dates, postponed indefinitely, or canceled outright, according to information compiled by The Bond Buyer from its offerings calendars.
"The market is feeling stable today [Thursday]. Even though there's a reasonable number of some bid lists out there, it's more orderly," a trader in New York said. "I think there's more stability with the [New York City] deal getting done relatively easily and tighter than things were last week. There's some comfort in that. If issuers are willing to accept the rates, the market will start to feel a little more comfortable."
Also yesterday, the Palm Beach County, Fla. School District competitively sold $85 million of tax anticipation notes to JPMorgan at a net interest cost of 2.1305%. The notes maturing Sept. 2009 yield 2.009% on a 3.75% coupon. The notes are rated MIG-1 by Moody's and SP-1-plus by Standard & Poor's.
The Treasury market was unchanged to weaker yesterday. The yield on the benchmark 10-year Treasury note, which opened at 3.94%, was recently quoted at 3.94%. The yield on the two-year note, which opened at 1.55%, was recently quoted at 1.60%. And the yield on the 30-year Treasury bond, which opened at 4.19%, was quoted recently at 4.24%.