Municipals rally as investors get back into secondary; California to finalize $2 billion sale

By Sheri Kasprzak

New York, Oct. 18 - Municipals rallied on Tuesday after suffering from softness throughout the previous week, said market insiders.

Yields were seen better by 3 basis points to 8 bps across the yield curve. One trader noted during the afternoon that after some stagnation, the secondary market was seeing some strong activity.

"It's a slow revival," he said of investor interest in secondary.

He noted that although the primary portion of the market has dominated activity for the past several weeks, investors are starting to show an interest in secondary action once again.

The State of California is poised to price for institutions $2 billion of series 2011 general obligation bonds (A1/A-/A-) in two tranches. Goldman Sachs & Co. is the senior manager.

The offering includes $1.8 billion of series 2011 tax-exempt G.O. bonds and $200 million of series 2011 taxable G.O. bonds.

The state conducted retail order periods on Monday and Tuesday.

Proceeds will be used to finance capital projects and refund G.O. debt with a mandatory tender date of April 2, 2012.

Final pricing on Wednesday

During the first retail order period, the state sold $250 million of the tax-exempt bonds to retail investors, comprising about 12.5% of the total offering. On Tuesday, retail investors snapped up another $136.7 million of tax-exempt bonds and took $85.3 million of taxable bonds, for a total of $472 million.

Retail investors were not offered the taxable bonds on Monday, said Tom Dresslar, spokesman for the state treasurer's office.

In total, retail investors took 21.5% of the tax-exempt bonds, 42.6% of the taxable portion and 23.6% of the total offering.

Tax-exempt yields during the retail order period range from 1.15% for the three-year maturity to 4.87% for the 30-year bonds.

On Monday and Tuesday, yields for the five-year bonds were quoted at 2.1%, compared with 1.61% for the state's offering conducted in September. In November 2010, the state sold G.O. bonds with a 2.66% yield, said Dresslar.

The yields on the 10-year bonds offered to retail investors were quoted at 3.51%, compared with 3.17% in September and 4.23% in November 2010.

Yields on 30-year bonds were quoted at 4.87% for the retail order period, compared with 4.8% in September and 5.5% in November 2010.

Pennsylvania prices G.O.s

In other state G.O. sales, the Commonwealth of Pennsylvania priced Tuesday $815.81 million of series 2011 G.O. bonds in two tranches, said a pricing sheet.

The offering included $650 million of first series 2011 bonds and $165.81 million of first refunding series 2011 bonds.

The first series bonds are due 2012 to 2031 with 2% to 5% coupons. The first refunding series bonds are due 2012 to 2022 with 2% to 5% coupons.

Citigroup Global Markets Inc. won the competitive bid for the offering.

Proceeds will be used to fund the construction, acquisition and equipment of capital projects within the state; make grants and loans for various capital improvement projects, including water and sewage treatment facilities; and refund existing debt.

Virginia College Building sells

Also during the session, the Virginia College Building Authority priced $163.335 million of series 2011A educational facilities revenue bonds, said a pricing sheet.

The bonds are due 2012 to 2031 with a term bond due in 2036. The serial coupons range from 3% to 5%. The 2036 bonds have a 4% coupon and priced at 97.746.

The bonds were sold competitively, but the issuer did not respond to calls requesting the winning bidder by press time Tuesday evening.

Proceeds will be used to finance construction projects for participating institutions.

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