The tax-exempt market ended Tuesday on a firmer tone, as most of the deals in the primary saw strong reception and lowered yields in repricings.
Traders said the strong activity Tuesday was just what the market needed.
“The Municipal Market Data scale hasn’t changed in four days,” a Chicago trader said. “So we’re just sitting here and hoping the next one comes. We are doing a little bit of odd lots, but not large pieces. We are in a tight range and will sit here until a piece of news blasts us out.”
He said the market was painfully slow the past few days, adding, “It was so painful, we were in the hospital.”
While the market has been quiet lately, Illinois’ $1.8 billion of general obligation bonds drew attention and did well. “I haven’t seen bumps yet, but it got off to a real good start,” he said.
One trader said higher prices are not necessarily good for participation, and as prices rise, many buyers step to the sidelines.
“Munis are up again,” a New York trader said. “When rates go lower, it’s not good. It takes retail out of the market and they are 90% of the business.”
Munis were steady to firmer Tuesday, according to the MMD scale. Yields inside 15 years were steady while the 16- to 21-year yields fell one basis point. Outside 22 years, yields were flat.
On Tuesday, the two-year yield closed flat at 0.31% for the 10th consecutive trading session, while the 30-year ended flat at 3.25% for the seventh consecutive trading session. The 10-year yield finished at 1.87% for the fifth time.
Treasuries were weaker. The two-year yield rose one basis point to 0.28%, while the benchmark 10-year yield increased two basis points to 1.95%. The 30-year yield jumped three basis points to 3.15%.
In the primary market, Jefferies & Co. priced $1.8 billion of Illinois GOs, rated A2 by Moody’s Investors Service, A-plus by Standard & Poor’s and A by Fitch Ratings.
Yields ranged from 0.85% with a 2% coupon and 1.02% with a 3% coupon in a split 2013 maturity, to 4.05% with a 4% coupon and 4.00% with a 5% coupon in a split 2025 maturity. The bonds are callable at par in 2022 except for credits maturing in 2014, which are callable at par in 2013, and credits maturing in 2015 that are callable at par in 2014. Bonds maturing in 2023 are not callable. The deal was oversubscribed and yields were lowered up to nine basis points in repricing.
The Illinois refunding, the largest ever tax-exempt issue by the state, received a total of $5.3 billion in orders from 100 investors. The deal achieved a true interest cost of 3.35% and resulted in $156 million, or 8.7%, in net-present value savings, better than originally projected, according to James Prichard, Illinois’ manager of capital markets.
“As we had expected, the sale went really well, with especially strong interest in the front end and on the back end,” Prichard said.
The deal benefited from a positive Moody’s commentary issued Monday on Gov. Pat Quinn’s proposed Medicaid and pension reforms and a Tuesday report from a local government watchdog group endorsing the governor’s proposed fiscal 2013 budget.
The yield on the first maturity ended up at 65 basis points over the triple-A MMD, while the final maturity in 2025 came in at 171 basis points over MMD. An insured 10-year bond carried a yield 165 basis points over MMD and an uninsured one paid a yield 175 basis points over. The state has in recent years paid a steep penalty to borrow because of its fiscal challenges. While it exceeded 200 basis points over MMD before the state’s adoption of an income tax hike in early 2011, it has most recently fluctuated between 160 to 170 basis points in trading on its 10-year bonds.
Elsewhere in the primary market, Citi priced for retail $506.1 million of Louisiana gasoline and fuels tax revenue refunding bonds, rated Aa1 by Moody’s and AA-minus by Standard & Poor’s and Fitch. Institutional pricing is expected Wednesday.
Yields ranged from 0.46% with a 3% coupon in 2014 to 2.53% with 4% and 5% coupons in a split 2024 maturity. Credits maturing in 2013 were offered via sealed bid. Bonds maturing between 2025 and 2032 were not offered for retail. The bonds are callable at par in 2022.
JPMorgan priced $260.4 million of Los Angeles wastewater system revenue refunding bonds and subordinate revenue refunding bonds. The senior-lien bonds are rated Aa2 by Moody’s and AA-plus by Standard & Poor’s and Fitch. The subordinate bonds are rated Aa3 by Moody’s and AA by S&P and Fitch.
Yields ranged from 0.42% with a 2% coupon in 2014 to 3.31% with a 5% coupon in 2032. Yields were lower up to five basis points with the majority of the price increases coming on the short end. The bonds are callable at par in 2022, except for bonds maturing in 2023.
While the primary stole most of the attention, the secondary market was fairly active. In a sample of CUSIP numbers compiled by data provider Markit, munis were both stronger and weaker.
Yields on Ohio’s Buckeye Tobacco Settlement Financing Authority 5.875s of 2047 fell three basis points to 7.68%, while New York 5s of 2021 dropped three basis points to 2.08%. Yields on California 5s of 2031 fell two basis points to 3.71%.
Other bonds showed weakening. Yields on Massachusetts State Development Finance Agency 5s of 2042 rose two basis points to 3.47%, while Puerto Rico Commonwealth Aqueduct and Sewer Authority 6s of 2047 also increased two basis points to 5.07%. Yields on New Jersey Economic Development Authority 5.25s of 2021 rose one basis point to 2.63%.
