Market Post: Illinois Spreads Come Wide, But Demand Strong

Following one of the worst selloffs in recent memory that cheapened municipal bonds nearly 60 basis points in three trading sessions, new deals priced Wednesday in hopes of taking advantage of cheap prices and building demand.

Wells Fargo priced $1.3 billion of Illinois general obligation  bonds, rated A3 by Moody's Investors Service and A-minus by Standard & Poor's and Fitch Ratings.

Yields ranged from 0.69% with a 4% coupon in 2014 to 5.85% with a 5.75% coupon in 2038. The bonds are callable at par in 2023. Bonds maturing in 2023, 2028, and 2033 were insured by Assured Guaranty Municipal Corp.

Yields were tightened 10 basis points from pre-marketing levels released Tuesday evening on bonds maturing outside 2019.

"The market is feeling a lot better," a Chicago trader said. "It feels stronger. Illinois is six-and-a-half times oversubscribed. Spreads are still very wide but it has plenty of demand."

Morgan Stanley priced $235 million of New York State Thruway Authority state personal income tax revenue bonds, rated AAA by Standard & Poor's and AA by Fitch.

Yields ranged from 1.02% with a 3% coupon in 2016 to 4.32% with a 5% coupon in 2033. Bonds maturing in 2015 were offered via sealed bid. The bonds are callable at par in 2023.

Later Wednesday, De La Rosa & Co. is expected to price $1.3 billion of tax and revenue anticipation notes for Los Angeles. The bonds are rated MIG-1 by Moody's, SP-1-plus by Standard & Poor's, and F-1-plus by Fitch.

In the competitive market, triple-A rated Georgia is scheduled to price $685 million of GOs in three pricings, including $427.4 million, $163.2 million, and $94.4 million. A refunding portion of $157.4 million was postponed by the state.

Tuesday, yields on the Municipal Market Data scale ended as much as five basis points higher. The 10-year yields rose one basis point to 2.81%. The two-year and 30-year yields were steady at 0.55% and 4.13%, respectively.

Yields on the Municipal Market Advisors 5% scale closed mixed with yields on the short end rising as much as one basis point and yields on the long end falling as much as two basis points. The two-year and 10-year yields rose one basis point each to 0.59% and 2.97%, respectively. The 30-year yield fell two basis points to 4.21%.

Treasuries were stronger Wednesday morning after gross domestic product was revised lower. The benchmark 10-year yield slipped six basis points to 2.53% and the 30-year yield fell three basis points to 2.57%. The two-year yield fell one basis point to 0.40%.

Real GDP increased at an annual rate of 1.85% in the first quarter of 2013, according to the final estimate released by the Commerce Department.

The 1.8% growth was less than the 2.4% increase expected by economists and the 2.4% preliminary estimate released in May. It was higher than the 0.4% increase in the first quarter of 2012.

"There is much less to this revision to real GDP growth than meets the eye," wrote economists at RDQ Economics. "The income estimate of growth was unrevised at 2.5% and the downward revision to the expenditure estimate of GDP was largely within two obscure areas of spending on services. This report should do nothing to change views on the economy or on the timing of the first pullback in the pace of Fed bond purchases. We continue to recommend that investors and traders focus on job creation as the metric for economic growth rather than GDP."

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