The Chicago Transit Authority's $555 million issue of sales tax revenue bonds was met with strong demand, even as trading slowed Wednesday.
The CTA bonds were quickly scooped up because they offered yield in a yield-starved market. Loop Capital Markets priced the bonds with yields ranging from 4.03% with a 5% coupon in 2044 to 4.23% with a 5.25% coupon in 2049. Yields on the benchmark 30-year are 3.53%, according to Municipal Market Advisors.
"I think the deal was attractively priced," a trader in Chicago said. "Because the market is looking for yield it was appropriately priced."
The bonds maturing in 2044 were wrapped with AGM insurance. Investors said that the bonds without insurance were more attractive because their yields were higher.
"I think [buyers] were more interested in the uninsured, because they offered more max yield and that's what the market is looking for," the trader in Chicago said.
The trader said the bonds are also desirable because of the Chicago name. Many buyers have adopted a strategy of buying bonds in or near distressed regions such as Illinois and Detroit because association with the name causes cities in the state or municipalities around such cities to rise.
"That is definitely still a strategy," a trader in Pennsylvania said. "Investors are definitely looking for higher yielding type names, those receive heavy demand.
The trader in Chicago said the bonds also were bought quickly because they are essential service utility bonds.
"Essential service revenues are more in demand than street GOs and non-essential service revenue," he said. "And it probably mitigates any negative association with Illinois."
The issuance has three sinking funds with two term bonds in 2044 and one in 2049.
The bonds received AA ratings from Standard & Poor's and Kroll Bond Rating Agency.
Investors said that trading slowed on Wednesday because of the Federal Open Market Committee announcement in the afternoon, when the Fed lowered its economic forecast and said that it was continuing its tapering policy.
Investors tend to move to fixed income assets when negative economic news is released, and immediately after the meeting yields fell by two basis points on bonds maturing in one year and one basis point for those maturing in 13to 15 years. Yields across the rest of the curve held steady.
"I think investors wanted to hear Janet Yellen's testimony and an update on what the Fed was thing," the trader in Pennsylvania said, referring to the Fed chair. "So much of what is going on in the market is telegraphed on what the Fed's been doing pretty consistently."
He said the order period today was less robust than in the last 10 days, though not dramatically so.
"It's a combination of several things, the Fed announcement, people are watching the World Cup," he said.
Yields have also been falling or holding steady across the curve because of tensions in Iraq. Global tensions also drive investors to U.S. fixed income.
The muni market has been following Treasuries recently, selling off for most of June, especially on the long-end. Muni yields on the 10-year have risen by 13 basis points to 2.32% this month, according to Municipal Market Advisors' data. The 30-year's yields have risen by eight basis points to 3.53%, and the two-year has held steady at 0.33%.
Yields fell and then steadied last week after the Islamic State of Iraq and Syria (ISIS) captured two major Iraqi cities including Mosul, Iraq's second largest city.
A second trader in Chicago said the 10- and 30-year bonds benefitted from the Iraq crisis as their yields fell from investors purchasing safe haven bonds.
The ISIS posted graphic videos of ISIS members murdering Iraqi soldiers, and a video was released showing Sunni militants interrogating Iraqi Special Forces soldiers and then shooting the soldiers in the back of their heads.
While yields did fall Monday morning, according to Municipal Market Data's triple-A scale, they have held steady the rest of the week according to MMA. Traders said this is because positive economic data has been released.
"The rally was attributable to Middle East concerns and the good economic data canceled it out," a trader in Virginia said.
Jefferies held a retail order period for $500 million of Metropolitan Transportation Authority revenue bonds on Wednesday. Yields ranged from 0.50% with a 4% coupon in 2016 to 3.96% with a 5% coupon in 2044. There is a sealed bid on bonds maturing in 2014 and 2015 and a term bond in both 2039 and 2044. The bonds are callable at par in 2024. The deal is rated A2 by Moody's, A-plus by S&P and A by Fitch.
Houston auctioned $200 million of tax and revenue anticipation notes on Wednesday to seven underwriters.
Bank of America won the bid for $50 million with a 0.10% yield, and a 1% coupon maturing in 2015. Goldman, Sachs won the award for $50 million with a 0.1% yield and a 1% coupon in 2015. JP Morgan won the bid for $35 million with a 0.105% yield and a 1% coupon in 2015.
Citigroup Global Markets won the bid for $25 million with a 0.10% yield, and a 5% coupon in 2015. RBC Capital Markets was awarded $20 million with a 0.11% yield and a 2% coupon in 2015. Financial Capital Markets was awarded $20 million with a 0.11% yield and a 1% coupon in 2015. The deal is rated SP-1-plus by S&P and F1-plus by Fitch Ratings.
Treasuries strengthened Wednesday, with the 10-year benchmark dropping six basis points to 2.60% and the 30-year yield falling four basis points to 3.41%. The two-year note slipped two basis points to 0.46%.
