Illinois competitively sold $550 million of general obligation bonds into a historically low-cost borrowing environment as yields on top-rated municipal bonds dropped to record levels across the board on Thursday.
Bank of America Merrill Lynch won Illinois' $550 million of Series 2016 general obligation bonds with a true interest cost of 3.7425%. The state said this was the lowest TIC that Illinois has ever received for a GO sale with a similar final maturity.
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%.
"We were pleased with the widespread investor interest in the state's bond offering," BAML said in a statement.
Spreads widened in Thursday's deal. The yield on the 2026 maturity was 185 basis points above the Municipal Market Data's triple-A benchmark 10-year read on Wednesday. On MMD's 4% scale, the 2041 maturity was 172 basis points above the comparable security.
"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 sale received 10 bids in total for the bonds. Other bidders included RBC Capital Markets, Jefferies, Wells Fargo Bank, Goldman, Sachs, JPMorgan Securities, Morgan Stanley, PNC Capital Markets, and Citigroup.
"The proceeds from this bond sale will allow us to pay for important infrastructure projects that will create jobs and drive the economy forward," Gov. Bruce Rauner's spokeswoman Catherine Kelly said in a press release. "It's time for the majority party to come back to Springfield and vote on our stopgap bill to ensure these projects continue without interruption."
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 Rauner 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 also lower. Illinois' 10-year maturity had a yield of 3.33%, 155 basis points over the top-rated MMD benchmark at that time. 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
Top-quality municipals finished stronger on Thursday. The 30-year muni general obligation fell four basis points to 2.13% from 2.17%, the second day in a row it set a new record low, according to the final read of Municipal Market Data's triple-A scale.
The yield on 10-year benchmark muni dropped five basis points to a record low of 1.42% from 1.47% on Wednesday.
U.S. Treasuries were narrowly mixed on Thursday, with some 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 was unchanged from 0.68% on Wednesday, while the 10-year Treasury yield fell to 1.56% from 1.58% and the yield on the 30-year Treasury bond decreased to 2.38% from 2.42%.
The 10-year muni to Treasury ratio was calculated at 87.5% on Thursday compared to 92.3% on Wednesday, while the 30-year muni to Treasury ratio stood at 88.0% versus 89.6%, according to MMD.
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%; FTN 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%.
Since 2006, the N.Y. MTA has sold over $30 billion of notes and bonds. The most issuance occurred in 2012 when the MTA sold $6.7 billion of debt while the least amount of debt sold was $1.3 billion in 2007.
In the negotiated sector, BAML priced the Dutchess County, N.Y., Local Development Corp.'s $378.12 million of Series 2016B revenue and revenue refunding bonds for Health Quest Systems. The deal consists of $28.115 million of Series 2016A revenue refunding bonds and $350 million of Series 2016B revenue bonds.
The small series was priced to yield from 0.74% with a 3% coupon in 2017 to 3.15% with a 3.125% coupon in 2037. The larger series was priced to yield from 1.38% with a 4% coupon in 2021 to 3.08% with a 3% coupon in 2036. A term bond in 2041 was priced as 4s to yield 2.97% and a term bond in 2046 was priced as 5s to yield 2.69%.
The issue is rated A3 by Moody's and A-minus by S&P.
Citi priced the Peralta Community College District of Alameda County, Calif.'s $157.83 million of general obligation bonds.
The $50 million of Series 2016D GOs from the 2006 election were priced to yield from 2.39% with a 3.5% coupon in 2032 to 2.54% with a 3.50% coupon in 2034. A term bond in 2039 was priced as 4s to yield 2.47%.
The $107.83 million of Series 2016A GO refunding bonds were priced to yield 0.55% with a 3% coupon in 2016 and also priced to yield from 0.88% with a 4% coupon in 2020 to 2.07% with a 5% coupon in 2034. A term bond in 2039 was priced as 4s to yield 2.47%. The deal is rated Aa3 by Moody's and triple-A by Fitch.
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.
