NEW YORK – The municipal market was unchanged to slightly firmer Wednesday, amid light to moderate secondary trading activity, as Illinois launched $900 million of taxable Build America Bonds in the primary.
“It’s more of the same really,” a trader in New York said. “There’s a bit of a firmer tone, but it’s pretty flat. I’d say unchanged, maybe a basis point better in spots. The new issue calendar is a bit more active today, but the secondary is still quiet. There isn’t a ton trading, especially outside of high grades.”
A trader in Los Angeles termed the session a “classic push-pull between we-got-him and they-want-him, we know they need to put the money to work, so we are not giving up much in here.”
“People are grudgingly putting money to work,” the trader said. “It should be up a basis point or two during the mid part of the scale today. The market place is very quiet, but it still has a very firm tone to it. What few trades have taken place, have been at the kinds of levels that give you an indication that they have money, they have to put some of it to work. They are not going out and buying bonds with both hands.”
In the new-issue market, Citi launched a $900 million sale of taxable BABs for Illinois, two weeks after state officials sidelined it while the fiscal 2011 budget was being signed and implemented.
The BABs mature from 2011 through 2016, with term bonds in 2021 and 2035. The bonds were priced to yield between 165 and 325 basis points over the comparable Treasury yields.
The financing arrives amid ongoing fiscal stress for the state, which drafted a budget with $1.4 billion in proposed spending cuts.
Illinois ended fiscal 2010 with 6.9% less sales taxes revenue and a 9.7% decline in income taxes. It has one of the nation’s lowest GO ratings.
The bonds, originally set to price the week of June 28, are rated A1 by Moody’s Investors Service, A-plus by Standard & Poor’s, and A by Fitch Ratings.
The Treasury market showed some gains Wednesday. The benchmark 10-year note was quoted recently at 3.05%, after opening at 3.12%. The 30-year bond was recently quoted at 4.04% after opening at 4.10%. The two-year note was recently quoted at 0.62% after opening at 0.66%.
The Treasury Department today auctioned $13 billion of 30-year bonds with a 4 3/8% coupon at a 4.080% high yield, a price of 105.05. The bid-to-cover ratio was 2.89. The Fed banks also bought $3.69 million for their own account in exchange for maturing securities.
The Municipal Market Data triple-A scale yielded 2.64% in 10 years and 3.70% in 20 years Wednesday, matching levels of 2.66% and 3.70% Tuesday. The scale yielded 3.99% in 30 years Wednesday, matching 3.99% Tuesday.
Wednesday’s triple-A muni scale in 10 years was at 85.5% of comparable Treasuries and 30-year munis were at 97.3%, according to MMD, while 30-year tax-exempt triple-A general obligation bonds were at 102.8% of the comparable London Interbank Offered Rate.
Elsewhere in the new-issue market Wednesday, Morgan Stanley priced $394.6 million of intermediate lien revenue and refunding bonds for the Port of Seattle in three series.
Bonds from the $25.3 million Series A mature from 2011 through 2017, with yields ranging from 1.12% with a 3% coupon in 2011 to 2.93% with a 4% coupon in 2017. Bonds maturing in 2011 were decided via sealed bid. The bonds are not callable.
Bonds from the $233.3 million Series B mature from 2014 through 2025, with term bonds in 2030 and 2040. Yields range from 1.81% with a 4% coupon in 2014 to 5.00% priced at par in 2040. The bonds are callable at par in 2020.
Bonds from the $136.1 million Series C, which is subject to the alternative minimum tax, mature from 2011 through 2024. Yields range from 1.87% with a 3% coupon in 2012 to 4.73% with a 5% coupon in 2024. Bonds maturing in 2011 were decided via sealed bid. The bonds are callable at par in 2021.
The credit is rated Aa3 by Moody’s and A-plus by both Standard & Poor’s and Fitch.
Also, the Regional Transportation Authority of Illinois has tentatively decided to move its sale of $140 million of working cash-flow notes to tomorrow. Bank of America Merrill Lynch is serving as senior manager.
The notes were originally scheduled to sell last week, but the agency pushed the sale off until next week to allow the market to digest Illinois’ $900 million sale slated for today. The finance team then decided to shift to this week due to the state’s $1.3 billion sale of GO certificates scheduled for late next week, said RTA chief financial officer Joe Costello.
In economic data released Wednesday, import prices dropped 1.3% in June, much more than economists expected and the largest drop in 17 months.
Total import prices for May fell 0.5%, revised higher from the 0.6% drop initially reported. The back-to-back declines in May and June were the first since December 2008 and January 2009.
Economists expected import prices to decrease 0.3%, according to the median estimate from Thomson Reuters.
Retail sales dropped a greater-than-expected 0.5% in June, marking the first two consecutive months of decline in the indicator since early last year.
However, retail sales excluding autos dipped just 0.1%.
The headline June 0.5% decrease followed a revised 1.1% decline in May that was originally reported as a 1.2% drop, while the 0.1% ex-autos dip followed a 1.2% decrease originally reported as a 1.1% decline.
Economists polled by Thomson Reuters expected total retail sales to decrease by 0.2% and for flat sales excluding autos, according to the median estimate.
Business inventories increased 0.1% in May as total business sales declined 0.9%, the largest amount in 14 months.
Economists expected inventories would increase 0.3%, according to the median estimate from Thomson Reuters. Business inventories rose an unrevised 0.4% in April.
Visible Supply
The Bond Buyer’s 30-day visible supply rose $562.1 million to $9.477 billion. The total is comprised of $3.268 billion of competitive bonds and $6.208 billion of negotiated bonds.
Previous Session's Activity
The Municipal Securities Rulemaking Board reported 44,652 trades on 15,043 issues for volume of $11.29 billion. Most active was Nevada’s Clark County School District 5.51s 2024 bonds, which traded 334 times at a high of par and a low of 97.120.
