The municipal market's strength on Thursday bled into the primary and allowed the larger deals to reprice at lower yields.
Yields on $450 million of L.A. Water and Power revenue bonds were lowered from five to 10 basis points from their initial institutional pricing. Their yields had already been reduced from two to three basis points, and 10 basis points to the 2039 maturity from their retail sale on Wednesday.
Yields on the $437 million Cypress-Fairbanks Independent School District bonds were repriced as much as eight basis points lower.
"With yields falling so much in the muni market, it's almost like underwriters have to take advantage of it," a trader in New York said. "There will be buyers; people are so hungry for issuance you never get all you want when you go in on a deal these days. And these large California, Texas credits -- underwriters are taking advantage of the situation."
In the broader municipal market yields on bonds maturing in four years fell by two basis points, according to Municipal Market Data's triple-A scale. They dropped by five basis point for bonds maturing in five to eight years, by seven basis points for bonds maturing in nine to 16 years, and by six basis points for bonds maturing in 17 to 30 years.
While the market's strength was positive for issuers selling in the primary on Thursday, it was also pushing the psychological threshold of some buyers, a trader in Chicago said.
"[The market's strength] is breaking through another level," he said. "Allocations aren't going to be that great, and there will be a stronger aftermarket for the bonds. It's getting harder and harder to transact."
A trader on the west coast said that he had tried to buy into the L.A. deal, but had been shut out.
Yields on bonds from the L.A. deal ranged from 1.03% with a 4% coupon in 2019 to 3.19% with a 5% coupon in 2044. here is an optional call at par in 2024, and there are sinking funds on term bonds in 2039 and 2044.
RBC Capital Markets is the lead underwriter on the deal, and the bonds are rated AA-minus by both Standard & Poor's and Fitch Ratings.
Yields on the Cypress-Fairbanks ISD deal were 0.23% with a 1% coupon in 2016 to 3.09% with a 5% coupon in 2044. There are sinking funds on two term bonds in 2029 and 2044, and the bonds can be called at par in 2024.
JP Morgan Securities was the managing underwriter on the deal, and with the permanent school fund guarantee program insurance it had triple-A rating from Moody's and S&P.
Buyers Look To Stockton For Cali Paper:
Investors said that they found the $69.44 million Stockton Public Finance Authority bonds Citigroup priced on Wednesday the most attractive of the California issuances that came to market this week. A second trader on the west coast said he had not even looked at the L.A. Water and Power bonds or the $112 million of Sequoia Union High School District, California general obligation Bonds for which Robert W. Baird & Co. won the bid on Thursday.
"It's a reach for yield, people are trying to do whatever they can to get yield," the first trader on the west coast said. "Every other deal is getting way oversubscribed, you can't buy anything."
The Stockton bonds are insured by Build America Mutual Assurance, and carry and AA rating from S&P with an underlying rating of A-minus, and an A-minus from Fitch.
"Stockton has not been great, but credit quality in California is improving," the first trader on the west coast said. "People are pretty bullish on California."
The Sequoia deal was rated Aa1 by Moody's and AA by S&P.
"The Stockton deal is a lot cheaper than [Sequoia or similarly rated deals], even if they have the same rating with insurance, people know," the first trader on the west coast said. "Stockton bonds are also all wrapped in 5% coupons from 2019 on."
Yields on the Stockton deal ranged from 0.30% with a 3% coupon in 2015 to 3.18% with a %% coupon in 2029, while yields on the Sequoia bonds ranged from 0.37% with a 2% coupon in 2016 to 3.57% with a 3.375% coupon in 2043. There was a sealed bid on the 2015 maturity.
The bonds can be called at par in 2024.
Money Funds Boosted By Inflows of $4B
Tax-exempt money market funds reversed a recent trend of significant outflows and accumulated $4.06 billion in new cash, which sent total net assets soaring to $256.80 billion in the week ended Oct. 6, according to The Money Fund Report, a service of iMoneyNet.com.
The inflows - which are the highest since the funds raked in a five-year high of $6.22 billion in the week ended July 7 -- were up from losses of $2.35 billion in the prior week and $1.11 billion in the week ended Sept. 22.
The average seven-day simple yield for the 411 weekly reporting tax-exempt funds was steady at 0.01%, while the average maturity remained at 42 days.
Inflows of $14.29 billion among taxable money market funds, meanwhile, boosted total net assets to $2.397 trillion in the week ended Oct. 7, which was up considerably from the $9.87 billion that the funds took in the prior week.
The average seven day simple yield for the 1,008 weekly reporting taxable money funds was unchanged at 0.01%, while the average maturity increased by one day to 46 days.
Overall the combined total net assets of the 1,419 weekly reporting money funds increased to $2.653 trillion after $18.35 billion of inflows were reported for the week ended Oct. 7.
The gains are more than double last week's inflows of $7.53 billion.
Treasuries:
Treasuries were mixed with the two-year note's yield rising by one basis point to 0.47% from Wednesday's market close. The 10-year fell by one basis points to 2.34% and the 30-year held steady at 3.07%.
