NEW YORK – The tax-exempt market was mostly weaker Tuesday despite the Illinois general obligation deal being very well received in the primary.

Ramirez & Co. priced the largest deal for institutions – $575 million of Illinois GOs, rated A2 by Moody’s Investors Service, A-plus by Standard & Poor’s, and A by Fitch Ratings.

Yields ranged from 0.73% with a 5% coupon in 2013 to 4.60% with a 5% coupon in 2037. The bonds are callable at par in 2022.

The deal was upsized from $500 million and yields were lowered 10 basis points on almost every maturity from preliminary pricing.

“They seemed to close the order period really quickly my guess is it went to large institutions,” a Chicago trader said.

Outside the large deal, the rest of the market was calm. “Overall, Treasuries are off and the muni market feels like it wants to feel better, but it’s not showing up yet,” a second Chicago trader said. “There was a focus on new deals but we have a light week on the calendar relative to last week. And it’s still not constructive in terms of putting money to work in this marketplace.”

He added that while the 10-year yield rose 14 basis points and the 20-year rose 10 basis points last week, market participants don’t believe munis are going to be stronger this week. “I don’t think participants believe that we’re going to reverse course,” he said. “The trend is higher rates – just in what time frame?”

Other traders agreed the market was generally quiet. “Munis are doing better today, but it’s still quite slow,” a New York trader said.

Munis were steady to weaker Tuesday, according to the Municipal Market Data scale. Yields inside seven years were steady while the eight- and nine-year yields rose one basis points. Yields outside 10 years rose two basis points.

The two-year yield closed steady at 0.27% for its fourth consecutive trading session, remaining one basis point above its record low. The 10-year yield and 30-year yield jumped two basis points each to 2.04% and 3.31%.

Treasuries were much weaker on positive economic news, especially following the Federal Open Market Committee announcement. Most market participants assumed there was no possibility of QE3 given that the general tone of the market has improved, and traders moved into riskier asset classes. The benchmark 10-year yield and the 30-year yield jumped nine basis points each to 2.13% and 3.26%. The two-year yield rose two basis points to 0.35%.

The FOMC maintained its 0% to 0.25% target range for the federal funds and repeated that “economic conditions are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014.”
“The changes from the Jan. 25 FOMC statement are fairly minor and are nonexistent on the policy front,” wrote economists at RDQ Economics. “The statement was slightly less downbeat on the economy and there was some acknowledgment that global financial tensions have eased.”

In other primary market municipal news, Bank of America Merrill Lynch priced for retail $750 million of New York State Thruway Authority bonds, rated AA by Standard & Poor’s and Fitch. Details were not yet available.

Bank of America Merrill Lynch priced for retail $206 million of Dormitory Authority of the State of New York bonds for New York University, rated Aa3 by Moody’s and AA-minus by Standard & Poor’s. Pricing information was not yet available.

Bank of America Merrill Lynch also priced $148.3 million of School Board of Lee County, Fla., certificates of participation after a retail order period Monday. The credit is rated Aa3 by Moody’s, A-plus by Standard & Poor’s, and AA-minus by Fitch.

Yields ranged from 0.93% with a 4% coupon in 2014 to 3.85% with a 3.75% coupon in 2027. The bonds are callable at par in 2022.

Bank of America Merrill Lynch priced $177 million of Industrial Development Authority of the County of Apache, Ariz., pollution control revenue bonds for the Tucson Electric Power Company project. The credit is rated Baa3 by Moody’s and BBB-minus by Standard & Poor’s and Fitch.

The bonds were priced a par to yield 4.50% in 2030 and are callable at par in 2022.

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