Municipals get boost from solid secondary, better Treasuries; California DWR offers up bonds

By Sheri Kasprzak

New York, Feb. 25 - Municipals were buoyed Tuesday by stronger Treasuries and a solid day of both primary and secondary activity, insiders said.

Municipal yields were better but underperformed Treasuries after a week of outperforming government securities. Yields were seen lower by 2 basis points to 4 bps.

In the Treasuries market, the 10-year note yield fell by 5 bps to close at 2.701%, and the 30-year bond yield fell by 5.5 bps to 3.656%. The five-year note yield closed lower by 4 bps at 1.51%.

Some of the week's competitive offerings, according to market sources, are demonstrating aggressiveness on the part of dealers.

California DWR brings debt

Among the larger new issues that priced competitively during the session, the California Department of Water Resources hit the market with $165.28 million of series AR Central Valley project water system revenue bonds.

The bonds (Aa1/AAA/) were sold competitively with Citigroup Global Markets Inc. winning the bid at a 3.23% true interest cost, said Perla Netta-Brown, the department chief of fiscal services.

The bonds are due 2015 to 2035 with 4% to 5% coupons, said a pricing sheet.

"We had been doing negotiated sales for the past 10 years, but the last three we decided to sell on a competitive basis," Netta-Brown said in an interview Tuesday.

"They were very successful. We've had anywhere between eight and 10 bids, all very good rates, so we decided to do another competitive sale."

Market conditions and the fact that the department is rated Aa1 by Moody's Investors Service and AAA by Standard & Poor's were other factors in the decision to sell competitively, Netta-Brown noted.

This offering came in with a TIC that was very similar to the department's most recent offering in June 2013. The department then sold Central Valley project bonds at a 3.22% TIC, Netta-Brown said.

Proceeds from the AR bonds will be used to construct some water system facilities in the Central Valley project and refund all outstanding commercial paper notes.

Mass Housing bonds price

Elsewhere during the session, the Massachusetts Housing Finance Agency offered $65.52 million of single family housing revenue bonds in three tranches.

The deal included $27,125,000 of series 168 non-AMT bonds, $19,375,000 of series 169 non-AMT bonds and $19.02 million of series 170 taxable bonds, said a pricing sheet.

The series 168 bonds are due 2014 to 2024 with a term bond due in 2026. The serial coupons range from 0.20% to 3.35% and all priced at par. The 2026 bonds have a 3.75% coupon and priced at par.

The series 169 bonds are due 2021 to 2022 with term bonds due in 2029 and 2033. The serial coupons range from 2.55% to 2.95% and all priced at par. The 2029 bonds have a 4% coupon, the 2033 bonds have a 4.4% coupon, and both priced at par.

The series 170 bonds are due 2014 to 2023 with coupons from 0.40% to 4.05% and all priced at par.

The bonds (Aa2) were sold through Morgan Stanley & Co. LLC, BofA Merrill Lynch and Barclays.

Proceeds will be used to finance mortgage loans and refund existing single family housing revenue bonds.

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