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The Week Ahead

Even Keel For Supply, Demand

Traders anticipate that the recent delicate balance between supply and demand in the muni market will be maintained even as issuance ramps up this week in the face of rollover funds.

The primary’s most recent new-issue calendars seemed to have landed right in the municipal market’s sweet spot, having settled at a point roughly where supply met demand, even though calendar sizes varied considerably as they navigated the Thanksgiving holiday. This week’s new deals should offer more of the same, industry pros said.

The Bond Buyer and Ipreo estimate that municipal bonds sold this week will total $5.89 billion against a revised $1.29 billion last week. There is $489.1 million scheduled in competitive offerings. This compared with a revised $181.9 million last week.

In addition, $5.40 billion of negotiated deals is slated for this week, versus a revised $1.11 billion last week.

At these levels, the week’s expected volume should raise neither eyebrows nor blood pressure, according to Municipal Market Data analysts Randy Smolik and Domenic Vonella.

“After an extremely light week of supply, the municipal new-issue market returns with what is expected to be a generally manageable slate of deals,” the two wrote in a recent research post. “This should keep the street focused on macro events such as muni-Treasury ratios, specific muni technicals and fundamentals, in addition to data and macro events.”

On the negotiated side of the ledger, a deal from Puerto Rico should set the pace. Citi is expected to price $1 billion of Puerto Rico sales tax financing corporate sales tax revenue bonds.

The deal is rated Aa2 by Moody’s Investors Service, AA by Standard & Poor’s, and AA-minus by Fitch Ratings. It should come to market Wednesday.

JPMorgan should follow the same day when it prices $702 million of New York Liberty Development Corp. Liberty revenue bonds. The bonds have a provisional Aa2 rating from Moody’s.

Goldman, Sachs & Co. is expected to price $500 million of Connecticut special tax obligation bonds for transportation infrastructure purposes in two series. The bonds are rated Aa3 by Moody’s and AA by Standard & Poor’s and Fitch. Retail should have a shot at them on Tuesday. Institutions may follow on Wednesday.

The Series A bonds, $250 million of new money for new construction, will span 20 years, according to Connecticut treasury officials. The other $250 million will be series B refunding bonds. The final maturity is expected to be through 2023. That could change based on the bonds the state has refunded.

“So, we’re refunding bonds for economic benefit, for savings for the program,” a treasury official said. “It’s just based on where we think the market will be. So, we matched the maturity to the bonds we refunded.”

Also, Ramirez & Co. is expected to price $483.9 million of New York’s Metropolitan Transportation Authority transportation revenue bonds. The bonds are rated A2 by Moody’s and A by Standard & Poor’s and Fitch. A retail period is expected for Tuesday. Institutions should have an opportunity on Wednesday.

In the competitive space, the Virginia Public School Authority should bring to market the only bond deal of any real size. On Wednesday, it is expected to sell $131.9 million of bonds, including school tax-credit bonds, direct payment Series 2011-12 qualified school construction bonds, and taxable qualified zone academy bonds. They are rated Aa1 by Moody’s and AA-plus by Standard & Poor’s and Fitch.

The market appears poised for more new volume, someone close to the MTA deal said. It successfully absorbed the heavy issuance from two weeks ago.

“The market certainly seems to have stabilized here,” she said. “It has found its footing.”

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