Municipals were trading in sympathy with Treasuries Thursday morning, as the market digested the news that the Federal Reserve was ending its monthly bond stimulus program and looked ahead to Thursday's planned pricing of the $400 million Illinois State Toll Highway Authority offering.
"I think the market was disjointed this week with the Fed speaking yesterday and people watching that, but today the curve is flattening and there is a nominally better tone," said a New York trader on Thursday morning.
"Bid-wanteds are light and manageable, and nothing seems to be driving the market," he said.
Municipals opened steady for maturities between 2015 and 2020, while yields rose by as much as two basis points for those from 2021 to 2044, according to Municipal Market Data.
The 2044 maturity ended at 2.44% on Wednesday.
The 10-year Treasury bond, meanwhile, opened at a 2.29%, down from 2.32% at Wednesday's close, while the 30-year opened at 3.01%, down from Wednesday's close at 3.05%, according to Bloomberg.
"Treasuries feel better," said the New York trader. Treasuries were at a 3.04% last Friday and have been trading "in a tight range" since then, he said. "Two weeks ago we were only two or three basis points cheaper."
Underwriters at Morgan Stanley and Wells Fargo Securities — joint book-running senior managers — are preparing the new-money, toll-backed deal as a means of kicking off record infrastructure spending plans for the coming year.
Ahead of the sale, Moody's Investors Service affirmed the tollway's senior-lien Aa3 rating and stable outlook that applies to about $5 billion of debt.
Fitch Ratings and Standard & Poor's affirmed the authority's AA-minus rating and stable outlook.
The ISTHA bonds are secured by toll revenues and the authority's pledges in bond covenants to charge a rate sufficient to repay debt, fund reserves and maintain a targeted debt-service coverage ratio.
Principal on the senior-lien bonds doesn't begin to mature until 2027 with a final maturity in 2039 as the agency debt is limited to 25 years.
The deal should find eager buyers — depending on pricing — the New York trader said. "It might come with a little yield because of the rating, so I'm sure there should be some decent response," he said.
The Illinois name will cost the authority some yield penalty as most issuers in the state pay more to borrow, especially ones with state exposure, given the state's well-known pension and budget problems.
In secondary trading, meanwhile, bonds from the $1.6 billion New York City Development Corporation offering for the 3 World Trade Center Tower project strengthened significantly in just two days — which traders said is extremely rare.
The bonds were trading 100 basis points richer Thursday morning than where they originally came on Tuesday in the new-issue market.
"People are surprised at the deal," the New York trader said, noting that the long bonds were trading at a 6.22% in the secondary market after being priced at 7.25% originally.
