Municipals firm after major losing streak; California brings $10 billion of short-term notes

By Sheri Kasprzak

New York, Nov. 18 - Municipal yields finally caught a break on Thursday after weeks of gains. Long-term tax-exempts were seen down 3 basis points to 5 bps, with short- to intermediate-term bonds seen up 2 bps to 3 bps, market insiders reported.

"It's really significant," said one trader.

"We managed to catch our breath today, and some longer-term bonds [are] getting snapped up. It's getting to the point now, I think, that yields have become way too high and issuers are backing off just enough to let things settle. It's been a good day - the first in a long time - I can tell you that."

Heading up Thursday's primary action, and dominating the week's volume, was the State of California's $10 billion of series 2010-2011 revenue anticipation notes for institutional investors through J.P. Morgan Securities LLC.

The offering included $2.25 billion of notes due May 25, 2011 and $7.75 billion of notes due June 28, 2011.

The May 2011 notes have a 3% coupon priced to yield 1.5% and the June 2011 notes have a 3% coupon priced to yield 1.75%.

Retail investors purchased 60.6% of the notes during the three-day retail order period.

"Ten billion in a market beating down issuers left and right? That's some heavy lifting, and we got it done," said Tom Dresslar, spokesman for the state treasurer's office.

"Given the inhospitable market environment, the price is very good for taxpayers, and the 60%-plus retail demand is a solid achievement."

Dresslar said that the state priced $8.8 billion of RANs in 2009 and paid 1.25% on the May maturity and 1.5% on the June maturity. In 2008, the state priced $5 billion of notes and paid 3.75% on the May maturity and 4.25% on the June notes.

Proceeds will be used to fund the state's cash flow requirements ahead of revenue collections, as well as to repay a $6.7 billion bridge loan obtained in October.

California preps G.O.s

Bolstered by Thursday's success, the state decided to upsize from $2 billion its previously planned sale of various purpose general obligation bonds, which are slated to come to market Friday after a delay.

Citigroup Global Markets Inc. will bring the bonds (A1/A-/) to market.

The offering will include $3.025 billion of Build America Bonds, which will fund public works projects, including schools, libraries and flood prevention projects, said Dresslar.

Texas Public Finance brings bonds

Elsewhere during Thursday's session, the Texas Public Finance Authority sold $1.1 billion of series 2010A unemployment compensation obligation assessment revenue bonds on Tuesday, downsized from $1,237,565,000, said a pricing sheet.

The bonds (Aa1/AAA/AA+) were sold through Bank of America Merrill Lynch and Citigroup Global Markets Inc. The co-managers were Estrada Hinojosa & Co. Inc.; Loop Capital Markets LLC; Goldman, Sachs & Co.; Jefferies & Co.; J.P. Morgan Securities LLC; Morgan Keegan & Co. Inc.; Morgan Stanley & Co. Inc.; Raymond James & Associates Inc.; RBC Capital Markets Corp.; and Siebert Brandford Shank & Co. LLC.

The bonds are due 2011 to 2017 with 2% to 5% coupons.

Proceeds will be used to repay principal and interest on advances from the federal unemployment trust fund, as well as fund current unemployment benefits.

Based in Austin, the authority provides funding to a variety of state-operated agencies and local governments.

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