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Record Volume Looms

NOV 11, 2011 6:26pm ET
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The waves of issuance rolling into the municipal primary market the past few weeks continue to grow. Last week's volume, at more than $9 billion, approached record territory for 2011, and this week's anticipated issuance should easily set a new high for the year, at nearly $12 billion.

Clearly the week's primary market is full of superlatives. Two huge deals are slated to weigh in at more than $1.2 billion. The expected negotiated volume alone would rank third for the year.

The Bond Buyer calculated that municipal bonds expected to be sold this week total $11.81 billion versus a revised $9.41 billion last week. That breaks down to a whopping $9.63 billion in negotiated deals against a revised $7.19 billion last week. Meanwhile, $2.18 billion in competitive offerings are slated for sale, compared with a revised $2.22 billion last week.

Can the market withstand even more volume? The large wave of new issuance left muni yields mixed last week, but with little movement along the curve by Thursday's close. A late surge in supply was expected for the year, according to Municipal Market Data analyst Domenic Vonella. But the degree of the increase has caught some players by surprise, he added.

"The healthy increase in supply for the end of Q3-beginning-of-Q4 could be a result of legislative uncertainties and macro risks that may lie ahead," Vonella wrote in a research post. "Issuers are all too familiar with being shut out of the capital market and are now looking to take advantage of relatively tame yields and credit spreads before macro risks hyper-inflate — supercommittee action, Euro contagion, to name a couple."

Leading off the week's massive negotiated calendar, Morgan Stanley is expected to price $1.32 billion of New Jersey Transportation Trust Fund Authority bonds. The bonds are rated A1 by Moody's Investors Service and A-plus by Standard & Poor's and Fitch Ratings.

Bank of America Merrill Lynch expects to follow with $1.27 billion of Hawaii general obligation bonds, Series DZ, and GO refunding bonds, Series EA, EB, EC and ED. The bonds, rated AA by S&P and Fitch, are expected to sell Thursday.

Barclays Capital then is expected to price $787.6 million of Minnesota's Tobacco Securitization Authority settlement revenue bonds. The bonds are rated A by Standard & Poor's and BBB-plus by Fitch. The bonds are expected to reach the market on Thursday.

On Wednesday, Bank of America Merrill Lynch is expected to price $483.2 million of Arizona Transportation Board subordinated highway revenue bonds in both tax-exempt and taxable series. The bonds, with $430.1 million of tax-exempt debt and $53.1 million of taxable debt, are rated AA-plus by S&P.

Barclays Capital is expected to price $450 million of New York City Municipal Water Finance Authority revenue bonds, which are rated Aa2 by Moody's and AA-plus by Standard & Poor's and Fitch. The debt should reach the market by Tuesday.

Massachusetts leads the competitive market with two of the largest deals this week. The state is expected to price $1.2 billion of GO revenue anticipation notes, in two $600 million series. The notes are rated MIG-1 by Moody's, SP-1-plus by Standard & Poor's, and F1-plus by Fitch. Both series are expected to hit the market on Tuesday.

Baltimore County follows with two deals of its own. On Tuesday, it's expected to issue $255 million of bonds in two series. The bonds are rated AAA by Fitch. The first series is expected to consist of $85 million of metropolitan district bonds, 74th issue. The second series should total $170 million of consolidated public improvement bonds.

The following day, the county is expected to issue $200 million of various bond anticipation notes in two series. The notes are rated F1-plus by Fitch. The first series is expected to consist of $60 million of metropolitan district notes. The second series should total $140 million of consolidated public improvement notes.

The primary market likely has three or four good weeks of issuance left, considering the holidays, said Peter Hayes, head of BlackRock's municipal bond group. Beyond that, January and February, historically low-volume months, should have little to offer, he said.

Support for munis this week will likely focus on clean, liquid names with the right coupon and call structure, particularly for the retail market, MMD's Vonella wrote. At the same time, he added, "institutional inquiry remains highly exposed to action with ratios and macro risks."

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