Volume will continue to level off from the highs of two weeks ago as $7.97 billion of municipal debt gets ready to sell this week, according to Ipreo LLC and The Bond Buyer.
That figure is higher than last week’s revised $6.10 billion — up from the $5.93 billion originally estimated — but not as significant as the $11.05 billion that sold in the week of Oct. 4, according to Thomson Reuters.
Market participants have predicted that the pending expiration of the Build America Bonds program at the end of the year will keep volume high through Dec. 31 as issuers aim to market the taxable debt, which comes with a 35% federal subsidy, while they still can.
“We see the municipal market maintaining a tentative tone, with the potential expiration of the BAB program keeping the market cautious about supply,” said Mike Pietronico, chief executive officer of Miller Tabak Asset Management in New York. “The shape of the municipal yield curve could be biased higher — and steeper — in the coming weeks as the Federal Reserve tries to nudge inflation expectations higher.”
Investors, on the other hand, will be seeking out bargains on the very short end of the yield curve due to the uncertain nature of both Federal Reserve policy and the possible expiration of the BAB program, Pietronico said.
“We would expect good demand for two-year municipals, which in most cases yield in excess of 150% of the comparable U.S. Treasury,” he said. The New Jersey Transportation Trust Fund took the spotlight last week when it issued $1.5 billion of transportation system revenue bonds — $1 billion of which were structured as taxable BABs and priced by Barclays Capital on Thursday into a relatively flat municipal market, according to traders.
The final 2028 bond was a split maturity that yielded 5.754% and 6.014% at par — or 3.74% and 3.97%, respectively, after the 35% federal subsidy, which was 195 basis points and 230 basis points over the 30-year Treasury yield at the time of the pricing.
The tax-exempt series of the New Jersey transportation deal had a 2024 final maturity that carried a 5% coupon and was priced to yield 3.97% — 26 basis points higher in yield than the generic, triple-A general obligation scale in 2024 tracked by Municipal Market Data on Thursday.
On Friday, the 30-year triple-A GO in 2040 ended at a 3.77%yield after little movement through the week, ending at a 3.71% Tuesday following last Monday’s Columbus Day holiday, and rising to a 3.73% on Wednesday and Thursday, according to MMD.
This week, Mississippi is hoping to gain some attention with its approximately $651 million of taxable GO debt in the negotiated market — $371.69 million of which is structured as Series 2010-F taxable, direct-pay BABs.
That portion of the deal — as well as a $45 million series of recovery zone economic development bonds — is being priced by Morgan Stanley on Thursday. While a source at Morgan Stanley said the structures were not finalized at press time, the deal’s preliminary official statement indicates bullet maturities in 2034 and 2035 on the RZED bonds, and serial bonds 2023 to 2034 on the BAB portion as the tentative structures.
The largest deal of the week also includes $233.9 million of traditional taxable GO debt expected to be priced for retail investors on Wednesday by Bank of America Merrill Lynch and for institutions on Thursday. The financing has obtained ratings of Aa2 from Moody’s Investors Service, AA from Standard & Poor’s, and AA-plus from Fitch Ratings.
An undetermined amount of tax-exempt bonds could also be included as Series 2010 G, depending on market conditions, according to state officials.
The Northeast, meanwhile, will see a flurry of activity, beginning with a three-pronged senior bond financing from the University of Massachusetts Building Authority totaling $568 million and planned for pricing in the competitive market on Thursday.
The deal consists of $126.3 million of Series 2010-1 bonds maturing from 2011 to 2020; $438.25 million of Series 2010-2 taxable BABs maturing from 2021 to 2040; and $3.02 million of Series 2010-3 traditional taxable bonds maturing from 2011 to 2040. The bonds are rated Aa2 by Moody’s, and AA by Fitch.
The New York Health and Hospitals Corp. will also come to market with $513.8 million of Series 2010 A health system revenue bonds, which will be priced by JPMorgan on Tuesday after a retail order period on Monday and is rated Aa3 by Moody’s, and A-plus by Standard & Poor’s and Fitch.
The bonds, which are structured to mature from 2011 to 2024, are secured by health care reimbursement revenues of the corporation and all funds and accounts established by the general resolution, including investment income, according to the POS.
New York’s Triborough Bridge and Tunnel Authority is gearing up to issue $346.9 million of senior general revenue bonds — $66.5 million of which will be sold as Series 2010 A-1 maturing serially from 2011 to 2020, and $280.4 million of which are structured as taxable BABs in Series 2010A-2 structured to mature serially from 2021 to 2040.
The bonds are secured by a net pledge of revenues under the Senior Bridges and Tunnels Resolution that includes revenues, tolls, rates, and fees — after operating expenses are paid.
The District of Columbia Water and Sewer Authority will issue $300 million of public utility subordinate-lien revenue bonds that are structured as BABs. Senior-managed by JPMorgan, the bonds are expected to be priced on Wednesday and rated Aa3 by Moody’s and AA-minus by Standard & Poor’s and Fitch. The structure was unavailable at press time.
Switching gears to Texas, a $409 million revenue refunding is on tap from the Lower Colorado River Authority on Thursday, following a retail order period planned for Wednesday by senior-manager Goldman, Sachs & Co.
The two-pronged deal, which consists of Series 2010 A and B, is secured by a gross revenue pledge and is expected to be rated A1 by Moody’s, A by Standard & Poor’s, and A-plus by Fitch. Proceeds will refund outstanding commercial paper and certain outstanding bonds of the authority, which is a conservation and reclamation district created by the Texas legislature in 1934 and is the largest public power wholesale provider the state.
The Alameda County, Calif., Joint Powers Authority will add to the negotiated activity when it sells $320 million of recently upgraded lease revenue bonds on Tuesday to finance multiple capital projects.
Barclays Capital will price the two-pronged bond offering, which is rated A1 by Moody’s, AA by Standard & Poor’s, and was upgraded to AA-minus from A-plus earlier this month by Fitch due in part to financial strength in the face of ongoing economic, federal, and state pressures, a large, diverse economy, and a low to moderate debt burden, among other factors, according to an Oct. 6 Fitch report.
The bonds, which mature serially from 2036 to 2045, are backed by Alameda County’s lease rental payments to the authority, subject to annual appropriation by the county, and will finance some of the costs associated with the Alameda County Medical Center Highland Hospital rebuilding project.
