The $450 million L.A. Water and Power deal benefited from the municipal market's strength on Thursday, and yields were lowered during the bonds institutional sale.
Market participants said that the broader muni market's strength would boost the appeal of deals in the primary, allowing underwriters to price the bonds more aggressively or in the case of the L.A. sale, up the price from retail to institutional sale.
Yields were dropped by two basis points on the L.A. bonds maturing in four to 13 years and by three basis points for those maturing in 14 to 16 years and for the 20-year maturity. The 17- to 19-year maturities hadn't been available for retail order.
The 29-year bond's yield was dropped by 30 basis points to 3.15% from its retail to institutional sale.
"This morning has been very strong, the market has been up, dealers are marking their invatory and stuff is getting more expensive," a trader in Chicago said.
Yields on municipal bonds in the broader muni market dropped by one to three basis points for bonds maturing in four years, by three to five basis points for bonds maturing in five to eight years, and from four to six basis points for bonds maturing in nine to 30 years.
He said he expects the L.A. deal to do "great" especially since yields were already bumped two to three basis points from Wednesday.
While the market's strength is positive for issuers selling in the primary on Thursday, it is pushing the psychological threshold of some buyers, the 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. Its getting harder and harder to transact."
Yields on the L.A. bonds range from 1.07% with a 4% coupon in 2019 to 3.23% with a 55 coupon in 2044. There 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.
Primary:
Another sizable California issuance hit the primary market on Thursday: $112 million of Sequoia Union High School District, California general obligation Bonds for which Robert W. Baird & Co. won the bid.
Yields on the 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.
The trader in Chicago said that the strength in the broader muni market will also help competitive deals coming Thursday, and that "any competitive deal will do well today".
The bonds earned ratings of Aa1 from Moody's and AA from S&P.
Treasuries continued to strengthen with the two-year note's yield dropping by one basis point to 0.45% from Wednesday's market close. The 10-year fell by two basis points to 2.33% and the 30-year by one basis point to 3.06%.
