As the market closes the books on June’s low volume, investors with proceeds from recent coupon and maturity payments to reinvest hope July perks up following this holiday-shortened week’s relatively light calendar.
Issuance in June dropped 21.6% to $34.4 billion, compared with $43.9 billion in June 2009, according to Thomson Reuters.
Analysts cited rising risk aversion and low yields in the municipal bond market, as well as uncertainty surrounding the sovereign debt crisis overseas.
July’s 30-day visible supply was estimated at $5.53 billion as of Friday, according to The Bond Buyer, a day after bondholders received redemption proceeds from July 1 coupons and called or maturing bonds.
Some of those cash-flush investors may have a hard time reinvesting proceeds in the new-issue market this week, as long-term volume is estimated at only $2.42 billion, according to Ipreo LLC and The Bond Buyer.
The week’s offering total is at least half of the revised $4.85 billion that was actually priced last week, according to Thomson data.
This week’s largest single deal — $404 million of triple-B rated revenue debt from the Virgin Islands Public Finance Authority — is expected to offer investors triple-exemption, diversity from plain-vanilla credits, and relatively higher yields during an otherwise lackluster week, according to one New York underwriter.
“I’m sure there’s money to be spent, and this fits the need for a lot of accounts,” he said. “It’s a four-day week instead of a five-day week, but Mondays are usually quiet in the summer anyway, and it’s a quiet calendar, so this should give people something to focus on.”
Triple-B revenue bonds due in 2040 were yielding 5.67% as of July 1, according to Municipal Market Data.
That level is 166 basis points higher than the 4.01% generic triple-A general obligation bonds due in 2040 offered on the same day, according to MMD.
The Virgin Islands deal, which is scheduled for pricing by Jefferies & Co. on Thursday, is structured as $305 million of senior-lien revenue bonds maturing serially from 2012 to 2020 with term bonds in 2025 and 2029, and $99 million of subordinate-lien revenue bonds structured as term bonds maturing from 2020 to 2029.
Moody’s Investors Service rates both series Baa2. Standard & Poor’s rates the senior bonds BBB and the subordinate bonds BBB-minus. Fitch Ratings rates the senior bonds BBB-plus and the subordinate debt BBB.
“The triple-exemption is the key,” the underwriter said. “Virgin Islands debt is relatively scarce and we are coming off two weeks with Puerto Rico deals in the market, so this deal could draw some of the same buyers, and some different buyers.”
Last week’s primary activity was dominated by a $1.2 billion sale of tax and revenue anticipation notes from Los Angeles in the short-term market.
The long-term market’s largest deal was a $650 million sale of Liberty refunding revenue bonds from the New York Liberty Development Corp. Wednesday that offered 5% and 6%-plus yields at a time when the generic triple-A GO bond due in 2040 ended at a 4.02% yield, according to MMD.
The bonds that are rated AA by Standard & Poor’s and Fitch and due in 2046, for instance, yielded 5.25%, while the 2049 maturity, which is rated BBB-minus by Standard & Poor’s and Fitch, yielded 6.37% — 235 basis points over the MMD scale.
The bonds, along with a $650 million issue of commercial mortgage-backed securities, refinanced the One Bryant Park office tower for its owners Bank of America Merrill Lynch and the Durst Organization.
Elsewhere, the Delaware River Port Authority plans $320 million of taxable Build America Bonds in a negotiated deal book-runner Citi will price either tomorrow or Thursday.
The deal is structured as one single 2040 maturity and is rated A3 by Moody’s and A-minus by Standard & Poor’s.
In the competitive market, Montgomery County, Md., plans to sell between $325 million and $334 million of GO public improvement bonds on Thursday in a three-pronged structure of bonds maturing from 2011 to 2030 that consists of tax-exempt bonds and taxable recovery zone economic development bonds.
Looking ahead, one of the largest deals investors can anticipate is the $900 million Illinois GO sale that is slated to price the week of July 12 after being postponed two weeks ago, a source at book-runner Citi said on Friday.
