Municipal bond buyers on Thursday turned their attention to $1 billion of Illinois general obligation bonds as trading activity on the week remained muted.
Citigroup Global Markets Inc. brought the $1 billion deal to the negotiated market Thursday morning, with yields on the ranging from 0.86% on a 3% coupon maturing in 2016 to 5.08% with a 5% coupon maturing in 2039.
"It's clearly benefitting from legislation that has passed even as there are still some outstanding issues with its legality," Adam Buchanan, vice president of sales and trading at Ziegler, said in an interview.
Retail orders were offered on bonds maturing from 2016 through 2024, and all the bonds, except for those maturing in 2028, feature an optional call at par in 2024. The 2028 bonds are callable at par in 2019.
The yield offered on bonds maturing in 2024 was 3.87%, 135 basis points above the AAA 10-year bond, according to Municipal Market Data. Illinois bonds in the third and fourth quarter of 2013 were trading at a spread closer to 160 basis points above AAA, Buchanan said.
"The progress they've made there on the pension side is being shown," Chicago-based Buchanan said. "There's also the supply dynamic of our market in the beginning of this year, which has been extremely low, so there's that as well."
Volume this week is estimated to be less than $5 billion of new issues, and no other deals over $100 million were scheduled for Thursday.
Yields on the MMD AAA 5% scale were steady throughout the curve Thursday morning, reinforcing trader's commentary that activity in the market started slowly.
"There's cash to be put to work but folks are still pretty hesitant, people are just kind of waiting for a little bit of a backup," Buchanan said. "There was big run last month and that gave folks some pause."
Treasuries started Thursday weaker, with the 30-year yield gaining three basis points to 3.67%, while the 10-year jumped to 2.70%. The two-year yield also rose three basis points to 0.34%.
