Atlantic City bond yields jumped and trading on the New Jersey city's debt spiked after a downgrade, as traders looked to get out of what one of them called a "dying gambling metropolis."
Moody's Investors Service on Wednesday cut Atlantic City's general obligation rating downgrade to Ba1 from Baa2, citing declines in casino revenue.
"I expect it to be down," a New York trader said. "No one is surprised that the city was downgraded. The news had been out there that casinos are struggling."
Trading volume on Atlantic City bonds was 126.2% above its 100-day average Thursday, according to data provided by Bloomberg. New Jersey's trading volume was 40.9% below its 100-day average.
Yields jumped on the Atlantic City bonds that account for most of the city's trading volume. The 5s in 2024's yields surged 43 basis points from Wednesday's level to 4.16%.
The 5s in 2026 and 5s in 2025 yields' also rose by seven basis points to 4.12% and by 33 basis points to 4.05% respectively.
"Rating agencies want to be in front of the credits and not caught behind the curve," a New York trader said. "A lot of investors are skeptical of rating agencies' views, but its good thing that they're stepping up and being proactive."
Traders said that the market is functioning on the short end of the curve right now with too much money chasing too little supply, traders said.
"Primary issues are coming cheaper," a second New York trader said. "I like the long end better than the short end, but there's no reason to get involved there right now."
Bank of America priced a two-part deal totaling $485.2 million of New Jersey Transit Corporation grant anticipation notes on Thursday.
Yields on the $383.3 million tax-exempt portion ranged from 0.46% with a5% coupon in 2015 to 2.65% with a 5% coupon in 2021.
"The tax exempt bonds were priced a little aggressively, but it was received well," the second New York trader said. "There's a lot of money in the short end. It was similarly bought up aggressively like yesterday's Maryland deal."
Yields on the $101.9 million series ranged from 0.50% at par in 2014 to 1.00% at par in 2015. Neither part of the deal has a call option.
"The taxable bonds were very well received, because they are very cheap," the second New York trader said.
The deal is rated Aa3 by Moody's and A by S&P.
Maryland's general obligation pricing, which pushed yields on the MMD scale lower earlier in the week, may bode well for the $163.6 million Louisiana Public Facilities Authority deal scheduled to enter the market on Thursday.
The revenue bond deal is short-weighted with maturities ranging from 2015 to 2027.
"Maryland was the big news of the week, which pushed yields lower to that range," an underwriter at Raymond James & Associates in New York said. "We won't know for sure where the deal's yields will end up until we price the bonds."
Raymond James anticipates strong demand for the deal.
"We have been aggressive in our marketing of the Louisiana deal," an underwriter at Raymond James in New York said. "We're anticipating a good day."
The deal received an Aa3 from Moody's Investors Service and an AA-minus from Fitch Ratings.
RBC Capital Markets will issue $141.4 million of Minnesota University Regents revenue bonds. The deal is rated Aa1 by Moody's.
Barclay's will issue a two-part deal totaling $118.3 million of Washington Economic Development Finance Authority revenue bonds. The deal is rated Aa1 by Moody's and AA-plus by Standard and Poor's.
Citigroup Global Markets will bring $109.6 million of Central Brown County, Wisc., Water Authority revenue refunding bonds. The deal is rated A-plus by S&P and AA-minus by Fitch.
Stifel Nicolaus will issue a two-part deal totaling $115 million of Emeryville Redevelopment Agency, Calif., tax allocation refunding bonds. The deal is rated A-plus by S&P.
In the competitive market, Alabama will auction $200.6 million of general obligation bonds in the competitive market. The deal is rated Aa1 by Moody's and AA-plus by Fitch.
Citigroup Global Markets won the bid for the $107.5 million general obligation bonds the town of Oyster Bay, New York auctioned on Thursday.
The bonds came with yields ranging from 0.85% with a 3.25% coupon in 2015, to 3.90% with a 4% coupon in 2031. The bonds have an option call in 2022 at par. The deal is rated BBB by S&P.
Yields opened steady across the curve on Thursday, after the market rallied for seven straight days, according to Municipal Market Data's triple-A scale. They held steady after the jobless claims for the week fell to 284,000, their lowest level to 2006, according to Bloomberg's economic calendar.
Analysts had predicted that new claims would come in at 302,000.
The four-week moving average dropped to its lowest level since 2007 at 302,000, down from the previous week's 309,250 four week moving average from the week before.
Treasuries weakened Thursday, with the 10-year benchmark climbing four basis points to 2.51% and the 30-year yield jumping three basis points to 3.30%. The two-year note rose two basis points to 0.50%.
