A spate of deals from Illinois should be well received this week amid increased demand for taxable bonds, improved prospects for pension reform and a drop in issuance from the state this year.
“The fiscal news coming out of Illinois has been positive,” one Chicago trader said. “So that’s an advantage right now. And these deals are coming in a week when there is not a lot to choose from.”
Three issuers in Illinois are expected to come with a combined $632 million in the taxable market, adding to a 136% jump in taxable issuance this year.
The largest will come in the competitive market Thursday with $300 million Build Illinois Bonds, rated AA-plus by Fitch Ratings. Overall volume this week is expected to remain under $5 billion, after totalling about $5.5 billion last week.
In the negotiated market, Wells Fargo will price $205 million of Illinois Finance Authority unsecured general obligation taxable bonds for the University of Chicago. The bonds are rated Aa1 by Moody’s Investors Service, AA by Standard & Poor’s, and AA-plus by Fitch.
Ramirez & Co. will sell $127 million of Illinois Housing Development Authority taxable housing bonds, rated Aa3 by Moody’s and AA by Standard & Poor’s.
The increased taxable issuance from Illinois comes after total taxable issuance for the first four months of the year has surged to $17.21 billion, from $7.28 billion for the first four months of 2012. In April, taxable issuance spiked up 310% to $6.18 billion from $1.51 billion in April 2012.
Overall issuance in Illinois is down so far this year versus 2012, leading some market participants to believe these deals should be well received.
“It depends on pricing and is a matter of how it’s perceived,” a second Chicago trader said. “I think they will probably do OK. But if someone deems them too pricey they will back up.”
This trader added the taxable market looks rich recently. “Taxable is really tight compared to straight tax-exempts,” he said, adding spreads favor tax-exempts now.
Still, he said, Illinois typically does well in the market. “When Illinois brings product everyone cries out it’s going to be horrible and when it comes it does a lot better than people anticipate. I think that is what will happen.”The Illinois House passed a wide ranging reform package Thursday aimed at slashing the unfunded liabilities and reining in rising annual payments that are straining the state’s fiscal foundation. The bill now heads to the Senate
Ahead of the sales, Illinois paper traded in line with the market Monday. “Illinois paper is slightly cheaper,” an analyst at Markit said. “It’s holding up pretty well given the sell off today.”
In the secondary market, taxable Illinois bonds traded in line with similar issues.
In odd-lot trading of Build America Bonds, Illinois taxable 7.35s of 2035 yielded 5.62%, five basis points higher than where the bonds traded Thursday.
In another CUSIP of Illinois BABs, a customer bought 7.1s of 2035 at 5.59%, one basis point lower in yield than on Wednesday.
A customer sold Illinois taxable 6.63s of 2035 at 5.68%, four basis points lower than where the bonds were sold Wednesday.
In more odd-lot trading, Illinois Finance Authority bonds traded stronger.
Bonds from an interdealer trade of 5.25s of 2021 yielded 2.42%, 22 basis points lower than where the bonds traded Friday.
Bonds from another interdealer trade of 5s of 2015 yielded 1.28%, 36 basis points lower than where they traded Friday.
These deals should hit the market in a week that is expected to see lower volume. The primary should see $4.98 billion this week, down from last week’s revised $5.49 billion. On the negotiated market, $3.04 billion should be priced, down from last week’s revised $4.35 billion. In competitive issues, $1.94 billion is expected to be auctioned, up from last week’s revised $1.14 billion.
Monday, the municipal bond market was fairly quiet with weaker trades.
“I saw a couple cheap prints this morning,” an Ohio trader said, adding the market is fairly slow outside that. “Munis need to play catch up from the Treasury selloff last Friday and even more now that Treasuries are a little leaky again today.”
“It’s just quiet and people are waiting to see how it plays out,” the second Chicago trader said. “There is already a slight cut [in prices] outside 21 years.”
In the secondary, trades compiled by data provider Markit showed weakening.
Yields on California 5s of 2042 jumped six basis points to 3.48% and Wisconsin 5s of 2018 increased five basis points to 0.94%.
Yields on Illinois 5.1s of 2033 and Arizona Water Infrastructure Finance Authority 5s of 2025 rose two basis points each to 5.13% and 2.08%, respectively.
Yields on Ohio’s Buckeye Tobacco Settlement Financing Authority 5.875s of 2047 and Massachusetts 5.25s of 2022 increased one basis point each to 6.71% and 1.83%, respectively.
Municipal bond scaled ended up to six basis points weaker Monday after posting losses Friday.
Yields on the Municipal Market Data triple-A GO scale finished as much as six basis points higher. The 10-year and 30-year yields jumped five basis points each to 1.73% and 2.87%, respectively. The two-year finished flat at 0.29% for the 22nd session.
Yields on the Municipal Market Advisors 5% scale ended as much as five basis points higher. The 10-year and 30-year yields increased three basis points each to 1.79% and 3.01%, respectively. The two-year finished unchanged at 0.32% for the 22nd session.
The Treasury yield curve steepened Monday as yields on the long end rose. The 10-year and 30-year yields rose two basis points each to 1.77% and 2.98%, respectively. The two-year yield fell one basis point to 0.22%.
Looking back at April, the median yield for municipal bonds of all maturities and ratings remained close to March levels, though they were higher than the 12-month low set in February, according to BondDesk Group.
The firm — which tracks retail trades under 100 bonds, or $100,000 in par value — said despite the increase in yields and credit spreads over the past two months, trade volume remained unchanged and finished close to levels in January through March. The buy-to-sell ratio dropped slightly in April to a new 12-month low.