Volume for the municipal market continues to tick down while investor demand for tax-exempt paper remains robust.
This week, muni bonds expected to be sold total $6.06 billion, versus a revised $6.56 billion last week. The three largest deals should average just more than $400 million.
The volume story for the most part still revolves around debt refinancing, but also new issuance in the intermediate part of the yield curve, an area that has been strong so far this year, said John Hallacy, a manager of municipal bond research at Bank of America Merrill Lynch.
While the focus on issuance has primarily been on debt refundings, especially current refundings, much of the volume that has come to market is hitting the intermediate range, or between seven and 15 years. Overall, the returns the market has seen this year in that range are outpacing other areas of the curve, Hallacy said.
Last week also saw a decent rally at the long end; over the week, 30-year triple-A yields fell 10 basis points to 3.15%. Industry pros say the long end should be pretty rich until the market sees more supply there.
Breaking down the volume numbers further, $1.88 billion in competitive offerings is scheduled for sale, compared with a revised $752.7 million last week. Also, $4.18 billion in negotiated deals is slated for sale, versus a revised $5.80 billion last week.
The market is very well-positioned to handle the current level of supply, according to James Colby, portfolio manager and senior municipal strategist at Van Eck Global. “People have been looking at the mismatch that seems to be looming over the next couple of months between supply and demand. Issuers are well-served coming into market right now,” he said. “And the reinvestment opportunity is terrific.”
Massachusetts boasts the week’s largest deal, and the only one in the competitive space due to arrive with more than $100 million. On Tuesday, the state is expected to auction $419.3 million of Commonwealth Transportation Fund revenue bonds for the Accelerated Bridge Program.
The bonds are rated triple-A by Moody’s Investors Service and Standard & Poor’s. They should be structured as serials, with maturities from 2013 through 2041.
Morgan Stanley is the lead book-runner on what should be the week’s largest deal in the negotiated market. The bank is expected to price $408 million of California Health Facilities Financing Authority revenue bonds in two series for the Stanford Hospital and Clinics. The bonds are rated Aa3 by Moody’s and AA-minus by Standard & Poor’s and Fitch Ratings.
A retail order period should occur Wednesday, followed by pricing on Thursday. The bonds are structured as both serials and terms with $68 million maturing from 2013 to 2023, $45 million in 30-year term bonds, $293 million in 40-year term bonds and $1.6 million due in 2032.
Siebert Brandford Shank & Co. is expected to price $400 million of Chicago second-lien water revenue bonds. The bonds are rated Aa3 by Moody’s, AA-minus by S&P and AA by Fitch. They are expected on Tuesday, structured as both serials and terms, with maturities in 2016 through 2042.
KeyBanc Capital Markets is expected to price $375 million of Build Illinois taxable sales tax revenue bonds. The bonds are rated triple-A by Standard & Poor’s and AA-plus by Fitch. They are expected to arrive Thursday, structured as serials and terms.
Last week’s largest loan, $1.8 billion of Illinois general obligation refunding bonds saw active post-sale trading, underscoring the market’s strength, Janney Capital Markets analyst Alan Schankel wrote in a research note. Furthermore, demand was strong enough for a gas and fuel tax revenue and refunding bond offering from Louisiana to be upsized from $515 million to $800 million, while yields were adjusted lower, Schankel noted.
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