The municipal bond market will see $5.6 billion of new issuance this week, with two $1 billion dollar deals topping the charts. Issuance is down from last week's revised $5.8 billion, according to Thomson Reuters.
Issuance in the negotiated market is up to $4.7 billion from last week's revised $3.75 billion, according to Ipreo and The Bond Buyer. Competitive issuance is down significantly to $922 million from last week's revised $2 billion.
The two largest deals of the week come Wednesday, with $975 million expected from the Tobacco Settlement Financing Corp. in New York and $900 million from the Citizens Property Insurance Corp. in Florida.
The tobacco corporation asset-backed revenue bonds are rated A by Standard & Poor's and A-plus by Fitch Ratings. The underwriter is Barclays Capital. Both the Series 2011A and 2011B bonds have maturities ranging from 2013 to 2018.
The Citizens bonds are underwritten by Citi. They are rated A2 by Moody's Investors Service and A-plus by Standard & Poor's and Fitch. The coastal account senior secured bonds include short-term notes, Securities Industry and Financial Markets Association floating-rate notes, and taxable London Interbank Offered Rate floating-rate notes.
These two large deals come after last week's $900 million triple-A Georgia general obligation bonds.
The deal was the largest-ever one-day sale for Georgia and reaped record low interest rates for the state. The $556.6 million new-money portion of the transaction sold as Series A through D. The bonds, including $77 million of taxable qualified school construction bonds, obtained a blended true interest cost of 3.31%. Nearly $40 million of Series A five-year bonds achieved a TIC of 0.93%, three basis points lower than a previous record low for the state.
The 20-year Series C bonds also set a record with a true interest cost of 3.45%.
Robert Williams, director of fixed income and income planning at Charles Schwab, said yields for high-quality, high-rated issuers are in demand. "Large triple-A state deals have come in the last few weeks and those types of transactions are certainly appealing to retail investors who are looking to get high-quality muni bonds that might be in or outside of their home state," he said.
He added that certain states like California and Illinois are facing credit problems, and he sees demand across state boundaries for higher quality bonds that aren't necessarily in an individual's home state.
In the search for extra yield, some investors are buying longer bonds or dipping down in credit quality. But Williams is still recommending that retail clients "continue to focus on buy and hold muni investing that should be the core of the portfolio." And if clients do search for higher yields, "general obligation bonds or central service water revenue bonds may be good, in that they are still high-quality sectors, but are slightly down to the mid single-A section," he said.
Several single-A issuers are coming to market this week. On Tuesday, the Houston Airport System will issue $500 million of subordinate-lien revenue refunding bonds. Underwritten by Goldman, Sachs & Co., the bonds are rated A by Standard & Poor's and A-plus by Fitch. The Series 2011A bonds are subject to the alternative minimum tax, while the Series 2011B bonds are not.
The San Francisco Airport Commission is also issuing $300 million on Thursday, rated A1 by Moody's, A by Standard & Poor's and A-plus by Fitch. Some of the second series revenue refunding bonds, underwritten by Barclays, are subject to the AMT.
"The supply side clearly has been constrained, but we expect that will pick up as we move into the second half of the year," Williams said, adding that while supply will pick up, "it is still likely to remain relatively slow given the continued efforts that state and local governments are making to rationalize expenses."
