The municipal market was mostly resistant to economic indicator announcements this past week as strong technicals gave the market continued strength, traders said.
Scales were only impacted slightly by Wednesday's surprisingly high gross domestic product number, despite a spike in Treasuries. The 30-year climbed eight basis points in reaction to the news on Wednesday while municipal yields only grew three basis points on the long end, according to Municipal Market Data's triple-A scale.
"Supply is still too tight for something like [gross domestic product] to impact the market right now," a trader based in New York said. "Supply and demand is the most important factor keeping the market in."
Yields for municipals climbed slightly on Thursday, in what some traders considered a delayed reaction, but ended the week strong, rising one basis point with a one basis point August roll for two-year maturities, by two basis points with a two basis point roll for three- to six-year maturities, and by one basis point with a one basis point August roll for bonds maturing in seven to 12 years, according to Municipal Market Data's triple-A scale.
Yields on the two-year held steady at 0.31%, according to Municipal Market Advisors' data. The 10-year's yield rose by one basis point to 2.23% and the 30-year fell by one basis point to 3.43%.
The asset class was shielded from any major impact stemming from economic data thanks to strong technicals surrounding supply and demand that were only exacerbated during the light primary calendar. Just $4.2 billion came to market this past week, making supply feel even sparser, said a Chicago trader.
For the deals that did price, extra importance was placed on credit quality and history, as seen in the differing reactions to the Illinois Sports Facility Authority deal compared to Cal State University, the two largest negotiated deals of the week.
California State University Trustee revenue bonds were unsurprisingly bid on aggressively by investors hungry for the state's paper, said a trader in Chicago. Municipal bond buyers have clamored over the state's issuances this year as supply has been low and many California state-specific funds need to place newly available funds, said the Chicago trader.
The deal was also strengthened by short-term state level funding stabilization, at least in the short term, said the New York trader.
Yields on the issuance ranged from 0.33% with a 3% coupon in 2016 to 3.63% with a 5% coupon in 2044. There is an optional call at par in 2024, and the deal contains sinking funds with term bonds in 2038, 2039, and 2044.
On the other hand was what one trader deemed the "most interesting deal of the week": The Illinois State Facility Authority bonds. Unlike Cal State, Illinois Sports ran into problems during its pricing on Thursday, picking up negative "spill over" from the state level distress, said the Chicago trader. The state of Illinois' rating was revised last week to A-minus with a negative outlook by Standard & Poor's, causing a spike not only in the state's general obligation yields, but other major issuers throughout the state including the City of Chicago and its Board of Education.
In Illinois Sports' case, there were pockets of unsold balances in the intermediate to long end of the curve, indicating that the deal could not place in its entirety, the Chicago trader said.
Some traders viewed the debt as a state appropriation, making the Authority particularly sensitive to state-level distress.
"There's a lot of weakening in Illinois right now," added the Chicago trader.
The deal's split rating only added to the uncertainty. S&P rated the deal A while Fitch Ratings gave the issuer a BBB-plus.
The $292.5 million refunding was priced to yield from 0.57% with a 3% coupon in 2015, to 4.17% with a 5.25% coupon in 2032, according to data provided by Ipreo.
After a spike on Wednesday, treasuries strengthened Friday with the two-year note's yield falling by seven basis points to 0.48%, the 10-year's falling by five basis points to 2.50%, and the 30-year dropping two basis points to 3.28%.
