Illinois competitively sold $550 million of general obligation bonds into an historically low rate environment on Thursday as yields on top-rated municipal bonds dropped to record lows across the scale at mid-session.
Bank of America Merrill Lynch won Illinois' $550 million of Series 2016 general obligation bonds with a true interest cost of 3.7425%.
The issue was priced to yield from 1.32% with a 5% coupon in 2017 to 4.05% with a 4% coupon in 2037; a 2041 term bond was priced as 4s to yield approximately 4.11%.
Spreads widened in Thursday's sale. The yield on the 2026 maturity was 185 basis points above the Municipal Market Data's triple-A benchmark 10-year read on Wednesday.
"MMD has assessed the spread of 10-year Illinois GO bonds at +175 basis points. This is slightly below the 12-month average of +179.2 basis points," Daniel Berger MMD's Senior Market Strategist, said ahead of the sale. "This is the highest spread among the 50 states. The only obligor followed by MMD with a higher spreads is the (Caa3/CC/CC) Commonwealth of Puerto Rico."
The top yield in 2041 was about 199 basis points above the comparable MMD scale read.
A Midwest trader said the deal was about 70% sold at midday.
The bonds are rated Baa2 by Moody's Investors Service and BBB-plus by S&P Global Ratings and Fitch Ratings. All three raters have negative outlooks on the credit.
Last week, Moody's and S&P cut the state's ratings while Fitch affirmed its rating while placing the state on negative review. Illinois ratings are the lowest of any state in the nation.
Since 2006, Illinois has issued about $27.5 billion of debt. The state last sold bonds competitively on Jan. 14, when Bank of America Merrill Lynch won $480 million of GOs with a TIC of 3.9989%. That issue was priced with a top yield of 4.27% in 2041, which was 161 basis points over the comparable maturity on MMD's triple-A scale.
In its sale in January, the administration highlighted the TIC, which was down from 4.08% on the state's GO sale 20 months earlier.
Spreads were wider on the January deal from the previous year, but rates were lower. Illinois' 10-year maturity paid a yield of 3.33%, 155 basis points over the top-rated MMD benchmark. Those spreads marked a sharp jump from 95 to 110 basis points on deals in 2014 before the budget impasse took hold and the Illinois Supreme Court overturned a state pension overhaul that was seen as a serious effort to tackle retirement underfunding.
Secondary Trading
The 30-year muni general obligation yield was three to five basis points weaker from a record low of 2.17% set on Wednesday, according to a read of Municipal Market Data's triple-A scale.
The yield on 10-year benchmark muni was four to six basis points weaker from 1.47%, which on Wednesday tied its all-time low set in 2012.
U.S. Treasuries were stronger on Thursday, with yields falling to levels not seen since 2012 a day after the Federal Reserve kept interest rates unchanged and ahead of next week's vote in the United Kingdom on whether to leave the Eurozone.
The yield on the two-year Treasury dropped to 0.65% from 0.68% on Wednesday, while the 10-year Treasury yield fell to 1.52% from 1.58% and the yield on the 30-year Treasury bond decreased to 2.35% from 2.42%.
On Wednesday, the 10-year muni to Treasury ratio was calculated at 88.9% compared to 91.9% on Tuesday, while the 30-year muni to Treasury ratio stood at 88.1% versus 90.0%, according to MMD.
MSRB: Previous Session's Activity
The Municipal Securities Rulemaking Board reported 42,334 trades on Wednesday on volume of $15.06 billion.
Primary Market
In the short-term competitive arena, the New York Metropolitan Transportation Authority sold $700 million of bond anticipation notes in two separate sales.
Eight groups won the MTA's $350 million of Series 2016A Subseries 2016A-1 dedicated tax BANs.
JPMorgan Securities took $100 million with a bid of 2% and a $976,000 premium, an effective rate of 0.548460%; Morgan Stanley took $50 million with a bid of 2% and a $489,500 premium, an effective rate of 0.544040% and took $50 million with a bid of 2% and a premium of $488,000, an effective rate of 0.548460%; BAML took $50 million with a bid of 5% and a premium of $1,501,428, and effective rate of 0.535000%; PNC Capital Markets took $50 million with a bid of 2% and a premium of $488,000, an effective rate of 0.548460%; RBC Capital Markets took $25 million with a bid of 2% and a premium of $243,995, an effective rate of 0.548480%; Citigroup took $10 million with a bid of 2% and a premium of $97,805, and effective rate of 0.545440; and FTN Financial Capital took $10 million with a bid of 2% and a premium of $97,550, an effective rate of 0.549190%.
Seven groups won the $350 million of Series 2016A Subseries 2016A-2 dedicated tax BANs. Wells Fargo Securities took $150 million with a bid of 4% and a $4,683,000 premium, an effective rate of 0.605170%; JPMorgan took $100 million with a bid of 2% and a premium of $1,280,000, an effective rate of 0.607640%; Goldman Sachs took $30 million with a bid of 2% and a $383,400, an effective rate of 0.609790%; RBC took $25 million with a bid of 2% and a $330,750 premium, an effective rate of 0.561620%; PNC took $25 million with a bid of 2% and a premium of $319,750, an effective rate of 0.608710%; FTNl took $10 million with a bid of 2% and a premium of $127,900, an effective rate of 0.608710%; and Citi took $10 million with a bid of 2% and a premium of $128,305, and effective rate of 0.604380%.
Bond Buyer Visible Supply
The Bond Buyer's 30-day visible supply calendar increased $466.4 million to $8.29 billion on Thursday. The total is comprised of $4.03 billion of competitive sales and $4.26 billion of negotiated deals.
Tax-Exempt Money Market Funds See Outflows
Tax-exempt money market funds experienced outflows of $3.31 billion, bringing total net assets to $205.09 billion in the week ended June 13, according to The Money Fund Report, a service of iMoneyNet.com. This followed an outflow of $546.1 million to $208.41 billion in the previous week.
The average, seven-day simple yield for the 292 weekly reporting tax-exempt funds was unchanged at 0.06%.
The total net assets of the 890 weekly reporting taxable money funds decreased $4.98 billion to $2.504 trillion in the week ended June 14, after an inflow of $20.53 billion to $2.509 trillion the week before.
The average, seven-day simple yield for the taxable money funds remained at 0.11%.
Overall, the combined total net assets of the 1,182 weekly reporting money funds decreased $8.29 billion to $2.709 trillion in the period ended June 14, which followed an inflow of $19.98 billion to $2.717 trillion.
