Appetite in the primary was mixed on Thursday as the negotiated market priced its two largest deals of the week: the Illinois Sports Facility Authority refunding bonds and the California State University Trustee revenue bonds.
Following the fate of other issuers in its state, the Illinois Sports deal found trouble during its pricing, said a trader based in Chicago. The deal failed to be put away in its entirety, with unsold balances in the intermediate to long end of the curve, said the trader.
"It's Illinois, everything is challenged," said the Chicago trader. Standard & Poor's revised its outlook to negative on the state's A-minus-rated general obligation bonds, resulting in the widest yields on the state's paper since October of 2013, according to the trader.
Some traders viewed the debt as a state appropriation, making the Authority particularly sensitive to state-level distress.
"There's a lot of weaken in Illinois right now," added the Chicago trader.
Barclays Capital received the written award on $292.5 million refunding bonds and was priced to yield from 0.57% with a 3% coupon in 2015, to 4.17% with a 5.25% coupon in 2032, according to data provided by Ipreo.
One New York trader called the issuance "the most interesting deal of the day," referencing the credit considerably split rating. S&P rated the deal A while Fitch Ratings gave the issuer a BBB plus. Bonds maturing between 2026 through 2032, which is the latest maturity, are backed by Assured Guaranty insurance.
Whether the deal was plagued spillover from distress on a state level or a general weakening of the municipal market on Thursday was unclear, said the trader.
BRIGHTER SKIES WEST
On the West coast, the Cal State University deal was immune to the market softening, placing its debt successfully and picking up aggressive bids across the curve, allowing yields to bump down slightly, said the Chicago trader.
Barclays Capital also priced the $748.62 million of California State University Trustee revenue bonds, the largest deal of the week. Yields ranged from 0.33% with a 3% coupon in 2016 to 3.63% with a 5% coupon in 2044. There is an optional call at par in 2024, and the deal contains think sinking funds with term bonds in 2038, 2039, and 2044.
The deal was widely bid on by investors hungry for California paper, said the Chicago trader.
"It's the story of the year," he added, noting the hungry appetite California has received so far in 2014. The deal also benefited from short-term state level funding stabilizing, at least in the short term, said the New York trader.
The deal is rated AA-minus by S&P.
A WEAKENING MARKET
Trading in the secondary saw yields soften across the curve with various issuers. Yields on State of Wisconsin general obligation refunding bonds 5s in 2023 rose to 2.33% on Wednesday from 2.30, while Triborough Bridge and Tunnel revenue 5s in 2044 weakened to 3.58% from 3.55% in round-lot trading on Wednesday, according to data provided by Markit.
Municipal scales softened on Thursday, in what the market believed to be a delayed reaction to the treasury spike Wednesday and the GDP announcement. Bond yields rose by one basis point for bonds maturing in three years, by two basis points for ones in four to six years, and by three basis points for bonds maturing in seven to eight years, according to Municipal Market Data's triple-A scale.
There was a four-basis-point yield increase for nine- to 12-year maturities, three basis points for 13 to 25 years, and four basis points for 26 to 40 years.
Meanwhile, Treasuries were mixed on Thursday after a frenzy of softening activity on Wednesday, with the two year note falling by two basis points to 0.55%, yields on the 10-year increasing by one basis point to 2.57%, and falling by one basis point on the 30-year to 3.30%.
Yields also rose slightly on Puerto Rico GO 5s in 2041 to 7.58% from 7.57% in trading on Wednesday, according to Markit.
MONEY MARKET FUND DECLINES
Tax-exempt money market funds declined by $908.2 million as total net assets fell to $255.84 billion in the week ended July 28, according to The Money Fund Report, a service of iMoneyNet.com.
The losses come on the heels of outflows of just $66 million in the prior week.
The average, seven-day simple yield for the 418 weekly reporting tax-exempt funds remained unchanged at 0.01%, while the average maturity was steady at 35 days.
The total net assets of the 1,010 weekly reporting taxable money market funds, meanwhile, increased by $2.80 billion and settled at $2.333 trillion in the week ended July 29, after the loss of $5.95 billion in the previous week.
The average, seven-day simple yield for the taxable funds was steady at 0.01%, while the average maturity decreased by one day to 43 days.
The combined total net assets of the 1,428 weekly reporting money funds rose by $1.89 billion to $2.589 trillion in the week ended July 29, after $6.01 billion of losses last week.
