Pricing for Detroit's Convention Facility Authority bond today indicated that the market is still cautious with credits associated with the bankrupt Michigan city, traders said.
The Detroit Regional Convention Facility Authority issued $271 million of local government loan program revenue bonds announcing final pricing on Thursday afternoon, according to data provided by Ipreo. Issued by the Michigan Finance Authority, the debt is secured by a hotel tax levied on three counties surrounding the convention center on top of a statewide liquor tax and an annual state transfer from cigarette tax revenue.
Despite the three-pronged security and split rating, the deal priced at a spread to Municipal Market Data's single-A scale. Carrying mostly 5% coupons, the deal was priced to yield a range of 0.47% on a 2% coupon in 2016 through 3.64% on a 5% coupon in 2039, according to data provided by Ipreo.
Spreads were the widest in the belly of the curve, pricing as much as 17 basis points above the single-A MMD scale in 2030, according to data provided by TM3 and Ipreo.
"It's just that nobody's totally convinced yet," said a New York based trader. "A convention center is a risk no matter where you are, let alone Detroit."
Even though the rating was split between a double-A and single-A, the deal was priced more in line with credits between a single-A and a triple-B, traders said. The debt carried AA-minus ratings from Standard & Poor's and A-plus ratings from Fitch Ratings.
"To be honest, I was surprised it carried the high ratings that it did," said the trader.
Final pricing on the week's highly anticipated San Joaquin Hills Transportation Corridor Agency bond sale was also released on Thursday morning after the deal team cut yields on the debt's longer dated maturities.
The triple-B minus rated senior lien toll road refunding revenue bonds were priced to yield a range of 0.60% on a 5% coupon in 2016 through 4.45% on a 5% coupon in 2050, according to data provided by Ipreo.
STATE SECONDARY SPOTLIGHT
Secondary trading was light on Thursday as traders kept their focus on yet another heavy and active day in the primary, according to data provided by Interactive Data. Among the day's biggest market movers, yields largely weakened for issuers across the country.
State general obligations were Thursday's most active, including the commonwealth of Pennsylvania, the State of Massachusetts, the State of California, and the State of Wisconsin, according to data provided by Markit. Yields of Pennsylvania's general obligation 5s of 2022 inched up two basis points to 2.13% from 2.11% while yields on Massachusetts' general obligation consolidated loan 5s of 2041 rose two basis points to 2.90% from 2.88%.
Yields for California's various purpose general obligation 5s of 2043 rose two basis points to 3.38% from 3.36% while yields on Wisconsin's general obligation refunding bonds rose two basis points to 2.13%, according to Markit.
The State of Illinois was the exception, with yields on its general obligation pension funding bond 5.1s of 2033 strengthening five basis points to 5.15% in round lot trading, according to Markit.
WEAK MARKET TENOR
Much of the market's weakness stemmed from a softening treasury market, pulling back from last week's rally, in which the 10-year benchmark dipped below 2%. Yields on the two-year were unchanged at 0.41%, while the 10- and 30-year edged up three basis points apiece to 2.28% and 3.05%, respectively.
Municipal scales weakened in sympathy to the U.S. Treasury market on Thursday, softening most significantly in the long end of the curve. Yields on bonds maturing between 2026 and 2044 rose four basis points while yields on bonds maturing in 2025 rose three basis points, according to Municipal Market Data's triple-A 5% curve. Yields on bonds maturing in 2023 through 2024 climbed two basis points as yields on bonds maturing in 2016 through 2022 inched up one basis point, according to MMD data. Yields on bonds maturing in 2015 remained unchanged.
MODERATE OUTFLOWS CONTINUE
Tax-exempt money market funds had outflows of $495.2 million, leaving total net assets at $255.57 billion in the week ended Oct. 20, according to The Money Fund Report, a service of iMoneyNet.com.
The outflows slowed from the $725.6 million that exited last week.
The average seven-day yield for the 409 weekly reporting tax-exempt money funds remained at 0.01%, while the average maturity decreased by one day to 41 days.
The total net assets of the weekly reporting 1,005 taxable money funds, meanwhile, grew by $14.82 million in the week ended Oct. 21 as total net assets rose to $2.397 trillion. That made up for the $14.12 billion that fled the funds in the previous week.
The average seven-day yield for the taxable funds remained at 0.01% while the average maturity increased by one day to 47 days.
The combined total net assets of the 1,414 weekly reporting money funds climbed by $14.33 billion in the week ended Oct. 21 as total net assets rose to $2.653 trillion, and nearly offset last week's $14.84 billion of losses.
Reporter Christine Albano contributed to this article.
