Investors said that they are finding bonds issued from municipalities in out-of-favor states such as Illinois and Michigan to be attractive investments.
"What we've done and where we continue to find value is the stigmatized credits, local governments within Illinois or Michigan that we've done our work on and consider high quality," Fred Bacani, head of fixed-income and trading at Veritable LP in Newtown Square, Pa.
Bacani said that one such credit is the Western Spring, Illinois, School District's general obligation bond that was issued on April 23.
He said bought the bond with the 5% coupon maturing in 2027 with a 2023 call.
"I bought the bonds cheap on an option-adjusted spread basis," Bacani said. "From a credit perspective, I like the school district's low adjusted debt-service level."
This year's low volume has made it difficult for investors to find yield. Supply for 2014 totaled $89.34 billion as of April 30, compared to $122.7 billion for the same period last year, according to data provided by Ipreo and The Bond Buyer.
The lack of supply has caused many of the recent deals coming to market to be increased or priced richly.
An example is the Illinois Tollway's $500 million senior revenue bond, an issue that was raised in size from its scheduled $450 million when it came to market on Wednesday.
"I think a great trade is to look at those states that had issues and to get out of the city that had the issue," a trader in New York said.
He said that bonds associated with Lake County and Naperville in Illinois are attractive.
The trader in New York said that he was also looking at the municipalities surrounding Detroit.
"The donut cities for Detroit, aka the surrounding cities of Detroit, are really wealthy towns that are trading super cheap," he said.
A trader in California said that looking at such cities as an attractive investment is like buying the cleanest shirt in a dirty drawer.
"Detroit is ripped to shreds," he said "If you're in an army when you drop a bomb, there's the blast zone, and investors are trying to buy within the blast zone of troubled credits in the past."
Citigroup Global Markets priced $308.7 million of Houston Airport Systems special facilities revenue refunding bonds Thursday.
Yields ranged from 4.65% with a 4.50% coupon in 2020 to 5.15% with a 5% coupon in 2029.
The bonds are callable at par in 2024 with term bonds in 2024 and 2029. The deal is rated B2 by Moody's Investors Services and B by Standard & Poor's.
Barclays Capital priced $239.9 million of tax-allocation refunding bonds for the successor agency to California's Inland Valley Development Agency.
The bonds were in demand because they offered investors an alternative purchase to traditional California GOs, market participants said.
"The market has been pretty monotonous, pretty quiet," the trader in New York said. "If you are a California state GO buyer, you want to jump on a different thing, a different name to break up the monotony."
Yields on the $146.2 million of non-
alternative minimum tax bonds ranged from 4.09% with a 5.25% coupon in 2037 to 3.97% with a 5% coupon in 2044.
There is a term bond in 2037 and two in 2044.
The $93.7 million of federally taxable bonds' yields ranged from 2.745% in 2018 to 5.50% in 2033.
There is a make-whole call at Treasuries plus 35 basis points.
Both bond series are callable at par in 2024 and are rated A-minus by Standard & Poor's.
Jefferies & Co. brought a three-part deal of $170.8 million of Harris County Flood Control District improvement refunding bonds to the market.
The $73.8 million taxable part of the deal was priced at par with yields ranging from 0.637% in 2016 to 3.211% in 2024. There is a sealed bid in 2015 and no call option.
Yields for $60.3 million of taxable refunding bonds ranged from 2.58% with a 5% coupon in 2025 to 2.91% with a 5% coupon in 2029. There is a sealed bid in 2014. The bonds are callable at par in 2024.
Yields for $36.7 million of tax-exempt improvement refunding bonds ranged from 2.58% with a 5% coupon in 2025 to 2.70% with a 5% coupon in 2026.
There is a sealed bid in 2014. The bonds are callable at par in 2024. The whole deal is rated Aaa by Moody's and AAA by S&P.
Municipal yields fell across the curve on Thursday, declining two basis point for four-to eight-year maturities and for 16-year maturities, they decreased by one basis point for 13- to 15-year maturities, by three basis points for 17-years, four for 18-to-26 years, and five basis points for 27-to-30 years, according to Municipal Market Data's triple-A Scale.
Yields for two-year maturities fell by one basis point to 0.35%, according to Municipal Market Advisors.
Yields dropped by two basis points on the 10-year to 2.28%, and by four basis points on the 30-year to 3.54%.
Treasuries were mixed Thursday, with the 30-year yields jumping four basis points to 3.44% and the 10-year benchmark inching up two basis points to 2.62%. The two-year notes fell two basis points to 0.40%.
