After the billion-dollar Chicago financing for O’Hare International Airport temporary boosted supply and lured retail investors to its 6% yields last week, volume will again recede to its previously skimpy state with few sizable deals vying for investors’ attention this week.
According to Ipreo LLC and The Bond Buyer, an estimated $3.46 billion of new volume is estimated to be priced this week.
The Chicago airport deal — the largest tax-exempt issuance so far this year — was priced last Tuesday on the heels of a revised $3.53 million of new volume, according to Thomson Reuters, just as tax-exempt yields declined for a 10th consecutive session.
At the time, yields on municipals and Treasuries both plummeted. The benchmark 10-year muni yield ended Monday at 2.92%, a 35-basis-point drop from April 11.
The pricing of third-lien revenue bonds was accelerated by one day and its relatively attractive yields were snapped up by supply-hungry investors in the face of a previously light new-issuance calendar.
The $423 million Series A bonds contained a final 2039 maturity that carried a 5.75% coupon and was priced to yield 6%.
The bonds were rated A1 by Moody’s Investors Service and A-minus by Standard & Poor’s and Fitch Ratings.
“There was no reason for the O’Hare deal not to do well; the scarcity of bonds has meant higher prices and tighter spreads, so the structure was attractive in comparison,” said Matt Fabian, managing director at Municipal Market Advisors.
“Until we get a fuller calendar, what the muni market does week to week doesn’t matter very much,” he said. “Prices are moving based on extrapolations of supply and demand, not real supply and demand. In that context, we’re cautioning against taking recent gains too seriously.”
On Friday, the market the generic triple-A GO scale in 2041 closed at a 4.58% yield, following light secondary trading throughout the day, according to Municipal Market Data.
This week’s negotiated activity will be led by a $600 million sale from the New Jersey Transportation Trust Fund Authority of Series 2011A bonds.
Rated A1 by Moody’s Investors Service, A-plus by Standard & Poor’s, and AA-minus by Fitch Ratings, the deal is expected to be priced by JPMorgan on Tuesday for retail investors and Wednesday for institutions. The structure consists of serial bonds maturing from 2013 to 2031, and two term bonds in 2035 and 2041.
In the Far West region, the Oregon State Board of Higher Education is slated to issue $201.9 million of general obligation bonds in a deal expected to be priced by Bank of America Merrill Lynch on Tuesday.
The financing, whose ratings are anticipated to be double-A plus by all threecredit agencies, will include both taxable and tax-exempt debt.
“They will both need defensive coupons to make sure the bonds don’t linger too long on underwriter balance sheets,” Fabian cautioned.
The larger of the two remaining long-term negotiated deals is a $157.7 million sale of revenue bonds from the Pennsylvania Higher Educational Facilities Authority on behalf of Drexel University.
Jefferies & Co. will price the deal on Wednesday. The bonds, which are rated A3 by Moody’s and A by Standard & Poor’s, will be structured as serials from 2012 to 2026, with term bonds expected in 2031, 2036, and 2041.
