The success of the oversubscribed $1.8 billion Detroit Water and Sewer Authority deal earlier this week has made investors more confident in bonds from states and municipalities that have financial troubles.
This new faith in distressed municipalities can be seen in Illinois general obligation bonds' recent trading, according to a trader in Chicago. He pointed to the Illinois 5s of 2032 that were trading at 4.25% on Wednesday, the day after the Detroit bonds were priced. This is approximately 25 basis points lower than the 4.498% the bonds were trading on May 1, according to data provided by Markit.
"Specifically, Illinois paper is trading tighter than it has been," he said. "The Detroit deal has made people more confident [in distressed municipalities]."
The Detroit bonds were sold late on Tuesday, eliciting $7.6 billion in orders for the $1.8 billion available.
Trading for all Illinois general obligation bonds was 17.5% above its 100-day average on Thursday, according to data provided by Bloomberg. The Illinois 5.1s of 2033 that account for the majority of Illinois trading volume were trading at 5.12%, five basis points stronger than they were on Wednesday. The 5.1s of 2033's yield is 19 basis points lower than the 5.31% the bonds were trading at last week.
Chicago bonds have also seen a pick-up in trading, with trading on all Chicago GOs 127.7% above their 100-day average.
The trader in Chicago said the markets' confidence in paper associated with Detroit and with Illinois will likely continue through next week, when the Illinois Finance Authority is scheduled to issue $18.5 million and the Michigan Finance Authority is expected to sell $91.4 million, according to The Bond Buyer's 30-day visible calendar.
"My guess is the deals will be placed fairly well based on demand that was out there for the Detroit deal," he said.
