Munis close firmer; California sees good response; week's issues expected to total $8 billion

By Sheri Kasprzak

New York, Sept. 24 - A new flood of supply, including a major offering out of the State of California, all helped to buoy municipal yields on Monday, market sources reported.

"California is seeing some good response out of the gate," said one trader reached in the early afternoon.

The state is planning to bring $1.55 billion of various purpose general obligation bonds on Tuesday. A retail order period was conducted Monday to great response from individual investors, said the trader.

"I think we've had such a dearth of California bonds in the past year that this will do well," he said.

Following a slowdown at the end of August, new-issue activity has experienced an uptick recently, with about $8 billion of new offerings priced last week and about $8 billion expected for this week, said Tom Kozlik, municipal credit analyst with Janney Montgomery Scott LLC.

Demand remains strong

"The demand side has remained very strong and, in fact, seems to have improved into the increase in supply," Kozlik said.

"Flows into municipal bond mutual funds for the week ending Sept. 12 were $1.3 billion, the highest reading over the last two months."

The new issues will be led by two major offerings: a $2 billion sale from the Port Authority of New York and New Jersey and that $1.55 billion deal from California, Kozlik said.

In fact, the week will include several sizeable deals, with more than $7 billion of the supply sized at over $50 million.

Port Authority deal set

During the week, the Port Authority of New York and New Jersey is set to bring $2 billion of series 174 consolidated bonds through RBC Capital Markets LLC, Bank of America Merrill Lynch, Barclays and Citigroup Global Markets Inc.

The authority intends to use the proceeds from the deal to finance the redevelopment of the World Trade Center site and to refund existing debt.

In June, the authority sold $300 million of series 173 consolidated bonds. Those bonds are due 2018 to 2032 with 3.25% to 5% coupons and 1.5% to 3.6% yields.

California bonds ahead

Coming up on Tuesday, that $1.55 billion G.O. offering from California will price for institutional investors. The bonds (A1//A) will price through RBC Capital Markets.

Proceeds will fund various capital needs for the state and refund existing G.O. debt.

The offering includes $1 billion of various purpose G.O. bonds and $550 million of various purpose G.O. refunding bonds.

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