The municipal market’s primary calendar is braced for a week of low volume.
With muni yields having backed up from lows established earlier in the year, the environment may have shifted to the point where issuers are unsure about the timing for bringing new deals to market. In addition, tax season is also approaching, and springtime is not historically a period where investors see much cash from coupon payments and redemptions to put to work.
Industry estimates place potential new issuance at just $3.36 billion for this week, down significantly from $5.53 billion last week.
Demand for primary volume is solid, industry pros said. The reduced supply isn’t necessarily a negative for the market, said Matt Fabian, managing director at Municipal Market Advisors.
“Assuming that the Treasury market remains constructive, the lower supply should give dealers the opportunity to get rid of unsold balances and to help the market stabilize, or even begin to re-rally to lower yields,” he said.
Some say that refundings have played a role in the volume uptick so far in 2012, comprising roughly half of issuance, according to numbers from RBC Capital Markets. But because the market has seen a backup at the 10-year part of the triple-A curve of around 50 basis points since February, refundings could be expected to diminish, according to Jaime Durando, head of municipal underwriting at the firm.
“We’re going to be hard-pressed to continue to print that $8-to-$9 billion in weekly volume with refundings being impacted to the extent that they have been over the last five or six weeks here,” he said.
Breaking down the expected volume numbers, there are $2.80 billion of muni bond issues scheduled for negotiated sale this week, versus a revised $4.24 billion sold last week. Bonds scheduled for competitive sale this week total $557.9 million, compared with $1.29 billion last week.
A few light deals pepper the negotiated calendar this week. Leading off, JPMorgan is expected to price $256.2 million of King County, Wash., sewer revenue and refunding and limited-tax general obligation refunding bonds.
The $132.5 million of sewer bonds are rated Aa2 by Moody’s Investors Service and AA-plus by Standard & Poor’s. They should be structured as serials and terms, including maturities in January 2013, January 2023 through 2028, and January 2052.
The $123.7 million of limited-tax refunding GOs are rated Aa1 by Moody’s and AAA by Standard & Poor’s. They should be structured as serials and terms, including maturities in January 2013, and January 2017 through 2030. Both are expected to price on Monday.
Wells Fargo Securities should follow with an expected pricing of $200 million of Rochester, Minn., health care facilities revenue bonds for the Mayo Clinic. The bonds are rated Aa2 by Moody’s and AA by S&P.
A retail order period is expected on Tuesday; institutions can then participate on Wednesday. The bonds are structured as a single maturity in November 2041.
RBC on Wednesday is expected to price $150.8 million of Minnesota Finance Housing Agency residential housing finance bonds in four series.
The first series should be $50.95 million of alternative minimum-tax refunding bonds. The second should contain $8.83 million of refunding bonds. The third should consist of $30.98 million of refunding bonds. The last should include $60 million of new-money bonds.
Bank of America Merrill Lynch is expected to price $149 million of Wisconsin Health & Educational Facilities Authority ministry health care bonds on Wednesday. They are rated A-plus by Standard & Poor’s.
James Ramage writes for The Bond Buyer.