Municipal bonds rally as retail investors return; Illinois brings $1.3 billion of G.O. bonds

By Sheri Kasprzak

New York, June 26 - Municipals rallied on Wednesday after struggling for quite a few sessions, market insiders reported. Retail investors returned, searching for higher yields.

A lack of liquidity led to double-digit yield jumps over the past few sessions, but the market seemed to settle back down starting Tuesday afternoon. The rally Wednesday started early and continued throughout the day, said one trader.

Yields, especially out long, were better by 5 basis points to 6 bps, said a market source in the afternoon.

Higher yields, said Alan Schankel, managing director with Janney Montgomery Scott LLC, drew retail investors back into the market after they sat on the sidelines for weeks. Of particular interest to these retail investors are 5% offerings for A-rated bonds, said Schankel.

Meanwhile, mutual funds continue to shed. Bid-wanteds on Tuesday were seen well below Monday's $2 billion record.

Illinois offers $1.3 billion

Heading up the afternoon's primary action, the State of Illinois came to market with $1.3 billion of series of June 2013 general obligation bonds, said a pricing sheet.

The bonds (A3/AA-/A-) were sold through Wells Fargo Securities LLC, Siebert Brandford Shank & Co. LLC and Stifel, Nicolaus & Co. Inc.

The bonds are due 2014 to 2031 with term bonds due in 2033 and 2038. The serial coupons range from 2.5% to 5.5% with yields from 0.47% to 5.48%. The 2033 bonds have a 5.25% coupon priced at par and a 5.5% coupon priced at 98.758 to yield 5.52%. The 2038 bonds have a 5.5% coupon priced at 98.003 to yield 5.65%.

Proceeds will be used to finance capital development, school construction and transportation projects.

Los Angeles TRANs price

Elsewhere during the session, the City of Los Angeles offered $1,324,550,000 of series 2013 tax and revenue anticipation notes, said a pricing sheet.

The deal included $265.97 million of series 2013A notes, $530,085,000 of series 2013B notes and $528,495,000 of series 2013C notes.

The 2013A notes are due Feb. 27, 2014, have a 2% coupon and priced at 101.153 to yield 0.16%.

The 2013B notes are due May 1, 2014, have a 2% coupon and priced at 101.472 to yield 0.17%.

The 2013C notes are due June 26, 2014, have a 2% coupon and priced at 101.741 to yield 0.18%.

Proceeds will be used for cash flow management and to prepay pension obligations for the city during the 2013-14 fiscal year.

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