Top quality municipals were unchanged on Wednesday, traders said, as the market quietly worked through the last full session of the week.
Not much happened on Wednesday. No bond deals are slated until 2016 and trading activity was likely to remain light until after the holidays.
There are no bond deals of over $1 million on the negotiated or competitive calendars until after the start of the new year.
On Thursday, trading will end at 2 p.m., New York, ahead of the full market close on Friday. Trading will resume the Monday after Christmas for another holiday-shortened week ahead of the New Year's celebration.
Secondary Market
The yield on the 10-year benchmark muni general obligation was flat from 1.93% on Tuesday, while the 30-year yield was steady from 2.82%, according to the final read of Municipal Market Data's triple-A scale.
Treasury bonds were lower on Wednesday. The yield on the two-year yield rose to 0.99% from 0.97% on Tuesday, while the 10-year Treasury gained to 2.26% from 2.24% and the 30-year Treasury yield increased to 2.99% from 2.96%.
The 10-year muni to Treasury ratio was calculated on Wednesday at 85.3% compared to 86.3% on Tuesday, while the 30-year muni to Treasury ratio stood at 94.1% versus 95.2%, according to MMD.
S&P Takes Illinois Off Negative Review; S&P, Fitch Affirm Rating
Standard & Poor's on Wednesday affirmed Illinois' A-minus general obligation bond rating, triple-B-plus appropriation debt rating, and triple-B-minus moral obligation rating and removed them from negative CreditWatch.
S&P also assigned an A- rating and negative outlook to Illinois' $480 million of Series January 2016 GO bonds, expected to be sold competitively on Jan. 14.
The outlook on the state's debt is negative, S&P said. The state has been at an impasse between the governor and the legislature over a budget for the fiscal year that began on July 1.
S&P said the outlook on the state is negative because it believes any structural reform outcomes may not be seen until Fiscal 2017 because of the length of current budget impasse and the lack of any meaningful agreement among elected officials on how to end it.
"The negative outlook reflects our view that we could lower our rating to the triple-B category should Illinois reach a budgetary agreement that does not make significant improvements to its budgetary alignment," S&P credit analyst John Sugden said in a press release. "In light of the Supreme Court's decision on the unconstitutionality of pension reform, an even greater focus is placed on the state budget's ability to absorb the future servicing costs and on the state to structurally align its budget over the long term."
However, S&P said it could revise the outlook to stable if "Illinois' elected leaders demonstrate the ability to negotiate and agree on a revenue and spending package that makes significant and long-lasting improvements to the state's structural budget alignment."
In a related action, Fitch Ratings affirmed Illinois' $26.2 billion of outstanding GOs at triple-B-plus. The rating outlook is stable.
In addition, Fitch assigned a triple-B-plus rating to the $480 million of Series 2016 bonds expected to sell competitively next month.
It will be the first sale under the administration of Gov. Bruce Rauner, who took office in January. Illinois has not sold bonds since May 2014.
Fitch said its rating reflects the continued deterioration of the state's financial flexibility during its extended budget impasse.
"Illinois' inability to balance its operations, eliminate accumulated liabilities, and grow reserves during a period of economic expansion leaves it vulnerable to the next economic downturn," Fitch said in a press release.
"With the national economic expansion now extending into a sixth year, Illinois has failed to capitalize on economic growth to restore flexibility utilized during the last recession or to find a solution to its chronic mismatch of revenues and expenditures," Fitch said. "Once again, the state has displayed an unwillingness to address numerous fiscal challenges, which are now again increasing in magnitude as a result."
In October, Fitch cut the state's GOs to triple-B-plus from A-minus.
Also in October, Moody's Investors Service lowered Illinois' GO bond rating to Baa1 and assigned a negative outlook to the debt.
MSRB Previous Session's Activity
The Municipal Securities Rulemaking Board reported 32,937 trades on Tuesday on volume of $4.15 billion.
