The municipal market was quiet Thursday afternoon, with an unchanged tone from the open as the $400 million Illinois State Toll Road Authority offering was the largest deal to price in the primary market and traders reported limited activity in the secondary market.
"We were busy late morning and early afternoon, but it's quiet right now," said a New York trader, who said any activity was focused on five years and under on the yield curve.
"There's no major change we're probably one to two basis points cheaper ever so slightly on the long end," he said.
Municipals due between 2015 and 2019 were steady, while maturities between, 2020 to 2024 rose as much as two basis points in yield, and those between 2025 and 2044 rose by as much as one basis point.
Treasuries, the trader said, were flat after earlier gains dissipated.
At midday, the 10-year Treasury bond was yielding a 2.31%, up from 2.29% at the open, while the 30-year was yielding 3.03%, up from 3.01%, according to Bloomberg.
Morgan Stanley & Co. and Wells Fargo Securities priced the Illinois senior revenue toll bond offering just as Moody's Investors Service issued a report concluding that lower gasoline prices would benefit toll roads.
"Lower gas prices increase traffic congestion on free roads, encouraging some drivers to use less congested toll roads that provide faster and more predictable trip times," Moody's analyst Maria Matesanz wrote in the agency's weekly Credit Outlook, published Thursday.
"Lower gas prices also increase leisure or discretionary travel, which stimulates greater toll road use in some areas," the report stated. The average retail price of regular gasoline fell nearly 50 cents between July and October this year to $3.06 a gallon this week, according to the U.S. Energy Information Administration.
The toll bond deal was priced with 5% coupons ranging in yield from 2.82% in 2027 to 3.53% in 2039. The generic, triple-A general obligation bond in 2039 yielded 2.89% at the time of the pricing, according to Municipal Market Data.
The bonds are rated Aa3 by Moody's, and AA-minus by Standard & Poor's and Fitch Ratings. Traders predicted that the bonds would be priced higher in yield than other double-A credits given the affiliation with and location in the state of Illinois which has weathered fiscal troubles in recent years.
Oppenheimer & Co. received the verbal award for the $339.85 million offering of Jackson County, Mo., special obligation revenue refunding it ended up pricing late Wednesday.
The deal did "extremely well" and had "excellent support from a lot of different types of buyers," according to a source close to the deal.
Although the scale was not yet published for the final pricing, the source said the 3% bonds in 2028 were most popular among retail investors, while the remainder of the deal - which was structured to mature from 2015 to 2031 - was institutionally-driven.
In secondary trading, the New York trader said he observed $5 million block sizes of the New York Liberty Development Corp. bonds for the 3 World Trade Center Tower project trading at midday.
He said the block size indicated that the bonds were trading among large institutional investors - as was mandated under the guidelines that the bonds be held by "qualified" buyers.
While there were some smaller block sizes trading, he said the deal must be held by qualified buyers only and confirmed its nonrated nature was definitely not appropriate for retail investors.
He reiterated comments by other traders Thursday morning that the bonds gained significant strength since pricing on Tuesday. He said he had "no doubt" that the bonds traded up due to the popularity of the 5% coupon and its name recognition.
"It was priced right at 5% at par in 2044," he said of the original pricing, which he also said had left a little wiggle room for adjustments post-pricing.
"When the deal came it was priced a little cheaper than they could have done - they could have priced it a little richer," he said. "I'm not the least bit surprised it's trading up."
