Municipal bond investors have indicated through Thursday’s sell-off and trench-scraping yields that the market can handle more primary issuance.
The calendar over the last month, running a gauntlet of holidays, has so far been exceedingly thin — as it tends to be at this time. This week’s issuance, technically, will rate as an uptick in supply.
But the incremental accretion will likely leave investors hungry for more. Nevertheless, The Bond Buyer and Ipreo estimated that municipal bonds expected to be sold this week will total $4.54 billion, versus a revised $3.08 billion last week.
There is $735.6 million in competitive offerings scheduled for sale, compared with a revised $1.16 billion last week. In addition, $3.81 billion in negotiated deals is slated for sale, against a revised $1.92 billion last week.
On Thursday and Friday, munis saw heavy selling and yields rose steadily, particularly in the intermediate and long ends of the curve. The market is currently pricing in higher amounts of supply, according to Michael Pietronico, chief executive officer of Miller Tabak Asset Management.
On Thursday, “the rally came to an end,” he said. “There was a fair amount of secondary market selling. If one is to interpret that, investors look to be making room for potential uptick in supply in the next one to two weeks.”
Muni ratios to Treasuries had gotten rich, particularly around the 10-year range, Pietronico said. And the market’s reaction between the last two trading sessions of the week was to swing ratios closer into alignment with where buyers are comfortable, relative to Treasuries.
The correction has hit the hardest at 10 years and longer on the curve. Muni yields on Friday rose nine basis points on both 10- and 30-year maturities, Municipal Market Data showed.
“The market just got way ahead of itself and profit-taking” on Thursday is continuing Friday, Pietronico said.
The week’s largest deals hail from the negotiated market. At the top, Goldman, Sachs & Co. is expected to price $402 million of Florida’s JEA water and sewer system revenue bonds, 2012 Series A.
The bonds are rated Aa2 by Moody’s Investors Service, AA-minus by Standard & Poor’s and AA by Fitch Ratings. They are expected to arrive on Tuesday.
Ramirez & Co. expects to price $400 million of New York City Municipal Water Finance Authority water and sewer system second-general resolution revenue bonds, fiscal 2012 Series CC. The bonds are rated Aa2 by Moody’s and AA-plus by Standard & Poor’s and Fitch.
The bonds should be structured in three terms: a small maturity in 2018, another in 2027, and $350 million in terms in 2045. A retail order period is expected on Monday, with institutions set to follow on Tuesday.
Bank of America Merrill Lynch is expected to price $334 million of Illinois Finance Authority revenue bonds, Series 2012A, for the University of Chicago. The bonds are rated Aa1 by Moody’s, AA by S&P, and AA-plus by Fitch. They should reach the market on Thursday.
Merchant Capital is expected to price $309 million of Gwinnett County, Ga., School District general obligation sales tax bonds Series 2012A, GO refunding bonds 2012B-1, and GO refunding bonds 2012B-2. The bonds are rated triple-A by Moody’s and Standard & Poor’s.
They are expected to reach the market on Wednesday and be structured as serials. The bonds will finance the district’s planned projects to build new schools, as well as renovate or build additions to existing schools, between 2014 and 2017.
Piper Jaffray & Co. was expected to price $225 million of Nashville and Davidson County Metropolitan Government GO refunding bonds Series 2012 on Tuesday. But to take advantage of the low-rate environment, the issuer decided to come to market last Thursday.
The competitive market should see a light week of issuance. Wake County, N.C., leads with two anticipated auctions scheduled for Tuesday that total $176.2 million. The bonds are rated AAA by Fitch. There is expected to be $96.8 million of GO school bonds, Series 2012A, and $79.4 million of GO refunding bonds, Series 2012B.
