The municipal market was unchanged to slightly firmer yesterday, amid light to moderate secondary trading activity, as Illinois launched $900 million of taxable Build America Bonds in the primary and the municipal scale stayed below 4% on the long end.
“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 marketplace 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 priced $900 million of taxable BABs for Illinois, two weeks after officials sidelined the deal 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.
According to a press release from the state, the bonds were priced with an interest rate of 4.56% after the 35% federal subsidy, 57 basis points over yesterday’s 30-year Municipal Market Data triple-A scale.
The financing arrives amid ongoing fiscal stress for the state, which drafted a budget with $1.4 billion in proposed spending cuts.
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. The benchmark 10-year note finished at 3.05%, after opening at 3.12%. The 30-year bond was quoted near the end of the session at 4.04% after opening at 4.10%. The two-year note finished 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 Federal Reserve banks also bought $3.69 million for their own account in exchange for maturing securities.
The MMD triple-A scale yielded 2.64% in 10 years and 3.70% in 20 years yesterday, matching Tuesday. The scale yielded 3.99% in 30 years, matching Tuesday and 18 basis points above the 30-year low for the scale, which was 3.81% on Oct. 2, 2009.
Yesterday’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 GOs were at 102.8% of the comparable London Interbank Offered Rate.
Elsewhere in the new-issue market yesterday, 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.
Citi priced $326.4 million of debt for the Maryland Transportation Authority, including $296.6 million of taxable BABs.
The BABs mature in 2025, 2030, and 2041, with coupons of 5.164%, 5.604%, and 5.75%, or 3.36%, 3.64%, and 3.74% after the 35% federal subsidy.
The deal also contained $29.8 million of tax-exempt bonds, which mature from 2015 through 2020.
The credit is rated Aa3 by Moody’s and AA-minus 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 today. Bank of America Merrill Lynch is 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 the $900 million Illinois sale. 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 yesterday, import prices dropped 1.3% in June, retail sales dropped 0.5% in June, and business inventories increased 0.1% in May.
Priti Patnaik contributed to this column.