Munis take a hit; yields seen 5 to 10 bps higher; California sells $3.4 billion taxable bonds

By Sheri Kasprzak

New York, March 25 - Municipal yields weakened on Thursday, with most of the weakness concentrated in the short end of the curve, traders reported.

"It's just been a rough day," one trader reached in the afternoon said.

"We're following Treasuries, which are also off today. Looks like the short end is getting the worst of it. Inside of 10 years, yields are up about 10 basis points. [Trading] volume is pretty light since everyone is focused on primary."

Dominating that primary action Thursday was a $3.4 billion upsized offering of series 2010 taxable various-purpose bonds (Baa1/A-/BBB) out of the State of California.

The sale was upsized from $2 billion.

The offering included $900 million in taxable bonds and $2.5 billion in Build America Bonds, said pricing sheets.

The traditional taxable bonds are due 2012, 2016 to 2017 and 2040 with 3% to 7.625% coupons.

The Build America Bonds are due 2018 to 2019 with term bonds due 2022 and 2036. The serial coupons range from 5.95% to 6.2%, priced at par. The 2022 bonds have a 6.65% coupon, priced at par, and the 2036 bonds have a 7.95% coupon, also priced at par.

Citigroup Global Markets Inc. was the lead manager.

The state is expected to use the proceeds to fund a variety of new and existing infrastructure projects throughout the state.

Best BABs price yet

"The 30-year BABs are priced at 270 basis points above U.S. Treasury yields," said Tom Dresslar, spokesman for the state treasurer's office.

"That's 5 basis points lower than [the] spread quoted early Wednesday. And it's 55 basis points lower than the 325-point spread on 30-year BABs the state sold last October."

Thursday's offering even attracted foreign investors, Dresslar told Prospect News.

"They submitted orders totaling more than $1.2 billion," he said.

The offering, according to state treasurer Bill Lockyer, will provide thousands of jobs for Californians.

"We accomplished a lot with this deal in addition to the economic stimulus," Lockyer said in a statement.

"We got the best price yet for our BABs relative to Treasuries. We attracted significant international investment. And we laid the groundwork to save taxpayers even more money by selling unprecedented $1 billion worth of callable BABs we can refinance."

Puerto Rico power bonds price

Elsewhere in Thursday's active primary market, the Puerto Rico Electric Power Authority sold $850 million in series XX power revenue bonds, said a term sheet.

The bonds (A3/BBB+/BBB+) are due 2025 to 2027 with term bonds due 2035, 2036 and 2040. Coupons range from 4.625% to 5.75%.

J.P. Morgan Securities Inc. and Citigroup were the lead managers.

The authority plans to use the proceeds to repay loans issued by private banks and the Government Development Bank for construction costs.

The authority is based in San Juan, Puerto Rico.

South Carolina highway bonds sold

In other news, the State of South Carolina sold $299.86 million in series 2010A state highway general obligation refunding bonds Thursday, said a pricing sheet.

The bonds (//AAA) were sold competitively, but the name of the winner was not immediately available.

The bonds are due 2011 to 2021 with 3% to 5% coupons.

Proceeds will be used to refund existing bonds utilized to fund highway improvements.

Michigan Muni Bond Authority deal ahead

Looking to upcoming sales, the Michigan Municipal Bond Authority is set to price $255 million in series 2010B state aid revenue notes for the School District of the City of Detroit, said a preliminary official statement.

The notes (/SP-1/), which are due March 21, 2010, will be sold through JPMorgan and Loop Capital Markets LLC.

Proceeds will be used to purchase a note that will be issued to Detroit's school district.

The authority is based in Lansing, Mich.

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