Municipals close session firmer with Treasuries; California offers $2.28 billion of G.O.s

By Sheri Kasprzak

New York, Oct. 23 - The municipals market ended firmer for the second straight session as the market followed stronger Treasuries, market sources reported.

In addition to stronger Treasuries, the secondary market, particularly high-grade paper, saw firmer trades 10 years and in, said a trader. Thanks to the stronger Treasuries market, new issues saw yields bumped in some maturities, said the trader.

The trader also noted that the larger-than-average new-issue calendar is a bit hard to digest.

California sells $2.28 billion

Heading up primary action, the State of California came to market with $2,280,055,000 of series 2013 general obligation bonds, according to a term sheet. The full details were released Wednesday.

The offering included $686,285,000 of series 2013 various purpose G.O. bonds, $234,785,000 of series 2013 school facilities G.O. bonds, $722,965,000 of series 2013 G.O. refunding bonds, $450 million of series 2013 mandatory put G.O. bonds and $186.02 million of series 2013 taxable various purpose G.O. bonds.

The various purpose G.O. bonds are due 2014 and 2018 to 2023 with term bonds due in 2025, 2032 and 2043. The serial coupons range from 2% to 5% with 0.15% to 3.19% yields. The 2025 bonds have a 5% coupon priced at 111.215 to yield 3.65%. The 2032 bonds have a 5% coupon priced at 104.068 to yield 4.49%. The 2043 bonds have a 4.875% priced at 99.764 to yield 4.89% and a 5% coupon priced at 100.860 to yield 4.89%.

The school facilities bonds are due 2029 to 2031 with 5% coupons and yields from 4.24% to 4.44%.

The G.O. refunding bonds are due 2014 to 2032 with 2% to 5% coupons with yields from 0.15% to 4.60%.

The mandatory put bonds are due 2026 to 2027 with 4% coupons and yields from 0.92% to 1.32%.

The taxable G.O.s are due 2016 to 2017 with 1.25% to 1.75% coupons and 1.09% to 1.657% yields.

The bonds (A1/A/A/) were offered through joint bookrunners Citigroup Global Markets Inc. and J.P. Morgan Securities LLC.

Proceeds will be used to finance capital projects, including the construction of schools within the state.

Retail buys $563 million

Retail investors purchased about $563 million of the tax-exempt bonds, said Bill Ainsworth, spokesman for the California Treasurer's Office. That amounts to about 44% of the $1.28 billion made available and 27% of the total principal of the bonds.

"The strong demand for California bonds the market showed today reflects the continuing confidence in California's improved fiscal picture," said Bill Lockyer, California's treasurer in a statement.

"I am pleased we were able to save the taxpayers $122 million by selling $723 million of refunding bonds."

Puerto Rico paper improves

Looking to Puerto Rico, the commonwealth's trading levels have improved in places since it held a webcast last week to address fiscal concerns.

Blocks of Puerto Rico G.O.s (Baa3/BBB-/BBB-) 5% of 2041 traded at 7.64% Tuesday, said Alan Schankel, managing director with Janney Montgomery Scott LLC. Those bonds traded at an 8.4% yields the previous Tuesday before the conference call.

The Puerto Rico Sales Tax Financing Corp.'s (A3/A+/A+) 5.25% of 2040 traded at 6.97% before the webcast and at 7.47% Tuesday, a 135 bps improvement, Schankel noted.

"These dramatic yield plunges are more typical of lower coupon, longer maturity issues, since dollar price is still a mandatory consideration for many investors," said Schankel Wednesday.

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