The tax-exempt market looked to the primary Wednesday as many of the week’s big deals, including the largest, were priced.
Buyers looked for deals in the new-issue market, keeping activity in the secondary market at bay.
Eyes turned to pricing of the week’s largest deal, $1.36 billion of Illinois Department of Employment Security, which issued unemployment insurance fund building receipts revenue bonds in two pricings. The credit is rated AA by Standard & Poor’s and AA-plus by Fitch Ratings.
JPMorgan priced the first series of $648.5 million. Yields ranged from 0.28% with a 2% coupon and 0.36% with 3% and 5% coupons in a split 2013 maturity to 1.05% with a 5% coupon and 1.13% with 4% and 5% coupons in a split 2016 maturity.
Citi priced $714 million. Pricing details were not available by press time.
Illinois saw strong demand for the unemployment paper which came in at 10 times oversubscribed when all orders were counted. “It was a very successful transaction,” said James Prichard, Illinois’ manager of capital markets. “We were able to raise the price 15 to 20 basis points” from initial pricing scales a day earlier. State officials and finance team members traveled across the country last week to meet with investors to press the credit’s strengths and lack of ties to the state treasury.
The state captured a true interest cost of 1.459% when applying the early redemption dates on the super sinkers and callable pieces of the deal and a rate of 2.195% when applying the stated maturities. The state received orders from 132 investors and 36 orders came from buyers seeking at least $100 million in securities. The state has paid steep premiums to borrow in recent years due to its liquidity and budget woes. Prichard said the state could not distinguish a penalty Wednesday. Investors had said last week they expected a 20 to 25 basis point penalty.
In other primary deals, Morgan Stanley priced $115.3 million of Ohio State University general receipts bonds, rated Aa1 by Moody’s Investors Service and AA by Standard & Poor’s and Fitch.
Yields on the first series, $92.1 million of tax-exempt bonds, ranged from 0.33% with a 2% coupon in 2013 to 3.06% with a 4% coupon in 2030.
Yields on the second series, $23.2 million of federal taxable bonds, ranged from 0.476% priced at par in 2013 to 3.673% priced at par in 2033. The bonds had spreads ranging from 25 basis points to 110 basis points above the comparable Treasury yields.
In the competitive market, Washington auctioned $560.2 million of general obligation bonds in four pricings. The credit is rated Aa1 by Moody’s and AA-plus by Standard & Poor’s and Fitch.
Citi won the bid for $273.5 million. Yields ranged from 1.17% with a 5% coupon in 2018 to 3.52% with a 4% coupon in 2037.
Bank of America Merrill Lynch won the bid for $167.6 million. Yields ranged from 0.25% with a 2% coupon in 2013 to 3.65% with a 4% coupon in 2042. The bonds are callable at par in 2022.
JPMorgan won the bid for $78.5 million. The bonds yielded 0.17% with a 0.17% coupon in 2013, 0.37% with a 0.37% coupon in 2014, 0.50% with a 0.50% coupon in 2015, and 0.65% with a 0.60% coupon in 2016.
B of A Merrill won the bid for $40.6 million. Yields ranged from 0.35% priced at par in 2013 to 1.20% priced at par in 2018. Prices of bonds maturing in 2014 were not formally re-offered.
As the majority of new-issue pricing got underway, traders said the market was flat and attention turned from the secondary to the primary.
“Overall I think the market is kind of flat-ish,” a Chicago trader said. “I think the new issues are doing well and the secondary stuff is moving but it’s not like its running out the door. Often times you have to give slight concession to the market, but it’s hanging in there and it’s fine.”
The trader said most activity was is in the primary. “It’s truly a primary market at this point. People are waiting to see what they get in the primary and then have a better feel.”
Others agreed. “Munis are slightly higher,” a New York trader said. “But there’s not much going on.” He added the secondary was relatively quiet as focus turns to new-issue pricing.
Munis ended steady to firmer Wednesday, according to the Municipal Market Data scale. Yields inside 11 years were flat while yields outside 12 years fell one basis point.
The two-year yield closed flat at 0.31% for the third consecutive session. The 10-year yield finished steady at 1.73% for the third session, closing six basis points above its record low of 1.67% set Jan. 18. The 30-year yield fell one basis point to 2.91%, setting a new record low as recorded by MMD. The previous record low was 2.92% set Monday.
Since June 22, munis have traded steady or firmer, holding an 18-consecutive session streak of steady to lower yields. Over that time, the 10-year yield has dropped 13 basis points while the 30-year yield has plunged 25 basis points.
Treasuries were stronger across the curve. The two-year yield dropped two basis points to 0.23% while the benchmark 10-year yield fell one basis point to 1.49%. The 30-year was steady at 2.59%.
In the secondary market, trades compiled by data provider Markit showed firming. Yields on Texas 5.5s of 2021 dropped three basis points to 2.25% while Puerto Rico Aqueduct and Sewer Authority 5s of 2033 dropped two basis points to 4.81%. Yields on Massachusetts 4s of 2042 fell one basis point to 3.53%.