Municipals firmer along with Treasuries; Illinois deal achieved 3.35% true interest cost

By Sheri Kasprzak

New York, May 2 - Municipals were firmer on Wednesday as both the primary and secondary segments of the market were active, traders reported.

One trader said he was a little surprised that there was so much interest in secondary names on such a strong day for primary activity.

"What's trading is mostly longer maturities, some stuff in the middle of the curve as well," said the trader.

"It's interesting because when you get a big day for primary, secondary sometimes suffers, but there's a good amount of both."

Treasuries were firmer as well, bringing municipals along with them, said a trader.

Illinois fetches 3.35% TIC

Looking to the week's primary action, the deal's largest offering drew significant demand and achieved a true interest cost of 3.35%, said a statement from joint bookrunner Duncan-Williams Inc.

The state priced $1,791,440,000 of series May of 2012 general obligation refunding bonds on Tuesday through Jefferies & Co., BMO Capital Markets LLC and Duncan-Williams.

The bonds (A2/A+/A) are due 2013 to 2025 with 1.6% to 5% coupons.

Proceeds will be used to refund existing G.O. debt.

According to James Prichard, the state's manager of capital markets, the state achieved a $156 million, or 8.7%, net present value savings from the offering, which was better than the state had projected. Insiders suggested earlier that the state hoped to achieve about $100 million in net present value savings.

Yields drop by 9 bps

Alan Schankel, managing director with Janney Montgomery Scott LLC, reported Wednesday that yields for the Illinois offering dropped by as much as 9 basis points because of the strong demand.

"Some bonds carried insurance from Assured Guaranty with the 10-year maturity evidencing the basis point value of insurance," Schankel said.

"With a 5% coupon, the uninsured piece of the 10-year bonds carried a 3.62% yield, while the insured portion yielded 3.52%, a 10 basis point spread representing perceived insurance value."

The news is particularly interesting given ratings agencies' recent negative outlooks for some of the bond insurers.

Recently, Moody's Investors Service reiterated its negative outlook for the overall bond insurance industry.

The ratings agency is focusing on the post-financial crisis business environment and portfolio risk for Assured Guaranty (Aa3/AA-/) and National/MBIA (Baa2/BBB/).

Seattle brings G.O.s

In Wednesday's primary action, the City of Seattle came to market with $126.54 million of series 2012 general obligation bonds, said a pricing sheet.

The deal included $76.67 million of series 2012 limited tax general obligation improvement and refunding bonds and $49.87 million of series 2012 unlimited tax G.O. refunding bonds.

The bonds were sold competitively. J.P. Morgan Securities LLC won the bid for the limited tax G.O. improvement and refunding bonds and Morgan Stanley & Co. LLC won the bid for the unlimited tax G.O. refunding bonds.

The limited tax G.O. improvement and refunding bonds (Aa1/AAA/AA+) are due 2012 to 2032 with 2% to 5% coupons. The unlimited tax G.O. refunding bonds (Aaa/AAA/AAA) are due 2012 to 2021 with 3% to 5% coupons.

Proceeds will be used to fund certain capital projects and refund existing G.O. debt.

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