Municipal yields stage a rally; California Department of Water Resources brings $1.76 billion

By Sheri Kasprzak

New York, Oct. 7 - Municipal yields improved yet again, this time by as much as 8 basis points on the short end of the curve, a trader said, as the market slowly begins to digest recent supply.

"We're getting a break, finally," said the trader.

"Supply is thinning out, some things have been postponed or canceled altogether, so that seems to help a bit, and yields are improving as a result. Short end might be down by 7 to 8 basis points. The rest of the curve, I'd say anywhere from 4 to 6 bps. It's been a good day."

Meanwhile, primary action on Thursday was led by $1.763 billion of series 2010M power supply revenue bonds from the California Department of Water Resources.

The bonds (Aa3/AA-/AA) are due 2011 to 2020 with 1% to 5% coupons.

In a recent interview with Prospect News, Russell Mills, chief financial officer with the California Energy Resources Scheduling - Department of Water Resources Electric Power Fund and Power Supply Program, said the issuer was looking for a 3% savings on its fixed-rate bonds.

The department plans to refund its variable-rate debt and its series 2002A fixed-rate bonds.

After a two-day retail order period, the department completed the pricing on Thursday.

"The product is a retail-oriented product," Mills said.

Market conditions were a driving factor in the issuer's decision to come to market with the offering on Thursday, said Mills.

"We have the ability to restructure at such a low fixed rate and provide savings to the rate payers of California. Timing really is a factor. We've got historically low interest rates."

Bank of America Merrill Lynch, Stone & Youngberg and Wells Fargo Securities LLC led the syndicate selling the bonds.

NYC sells G.O. bonds

In other pricing news Thursday, the City of New York priced $1.426 billion in series 2011 general obligation bonds, said a pricing sheet. The offering was upsized from $1.3 billion.

The sale included $925 million in series 2011C-1 Build America Bonds, $31.385 million in series 2011D tax-exempt bonds and $470 million in series 2011E tax-exempt bonds. The sale initially included a competitive offering of series 2011C-2 taxable bonds, but that portion was cut.

The 2011C-1 bonds are due 2012 to 2021 with term bonds due 2024, 2025, 2031 and 2037. Serial coupons range from 1.16% to 4.297%. The coupon is 5.047% for the 2024 bonds, 5.147% for the 2025 bonds, 5.817% for the 2031 bonds, and 5.517% for the 2037 bonds. All of these bonds priced at par.

The 2011D bonds are due 2011 to 2028 with 2% to 5% coupons.

The 2011E bonds are due 2012 to 2028 with 2% to 5% coupons.

The senior manager was Bank of America Merrill Lynch.

Proceeds will be used for capital purposes.

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