Texas Rans Lead an Upsurge in Primary Volume

The municipal market this week should see an uptick in primary volume meet a still-robust level of demand.

Potential volume this week should total $6.79 billion of long-term debt, up from total sales of $4.77 billion last week. The short-term market, still absorbing $10 billion of California notes, will see a similar sized offering from the Lone Star State.

Texas is expected to auction $9.8 billion of revenue anticipation notes.

The New Jersey Turnpike Authority will provide the market’s largest issue, with an expected $810 million in revenue bonds.

The numbers show there are $5.7 billion of municipal bond sales scheduled for negotiated sale this week, versus a revised $3.53 billion that were sold last week. Bonds scheduled for competitive sale this week total $1.09 billion, compared with $1.23 billion last week.

The technicals for the market appear sound, and the market shouldn’t struggle with the uptick in volume, said Chris Mier, a managing director in the analytical services division at Loop Capital Markets.

“The market is well positioned to absorb the new issues, assuming pricing reflects current market realities,” he said.

But investors might interpret the latest movements in tax-exempt yields as a time to pause and reconsider where the market will settle next.

With yields having risen precipitously since the record lows of late July, Mier said, it’s not clear whether the demand for higher-yielding paper and the need to put cash to work will trump the concern that rates might rise further still.

August has been a good month for volume, though. The market is already ahead of both 2010 and 2011 tax-exempt supply for the month, Mier said. The week’s negotiated calendar has 23 loans over $100 million, compared with only seven last week.

“The trend for slow summer issuance is not in effect here and it looks like it could be a pretty busy fall,” he said.

On the competitive side, the Texas notes will take center stage. They are rated MIG-1 by Moody’s Investors Service, SP-1-plus by Standard & Poor’s and F1-plus by Fitch Ratings.

The notes, expected Tuesday, mature on Aug. 30, 2013. After the Texas Rans, pickings for the week are slim among competitive deals.

Among negotiated deals, Citi is expected to price $810 million of New Jersey Turnpike Authority revenue bonds. The bonds are rated A3 by Moody’s, A-plus by Standard & Poor’s and A by Fitch.

The bonds are expected to arrive Thursday. They should come structured as serials, maturing from 2019 through 2030.

JPMorgan is expected to price $480.2 million of New York State Thruway Authority personal income tax revenue bonds. The bonds are rated AAA by Standard & Poor’s and AA by Fitch.

There should be a retail order period Monday. Institutions will have their opportunity one day later. The bonds should be structured as serials, maturing from 2013 through 2032.

Citi is also expected to price $443.3 million of Chicago O’Hare International Airport passenger facility charge revenue refunding bonds in two series. The bonds, scheduled to arrive Wednesday, are rated A-minus by Standard & Poor’s and A by Fitch.

The first series weighs in at $113.7 million. The second series, $329.6 million, is subject to the alternative minimum tax. The bonds should arrive structured as serials, maturing through 2027, and one term maturity in 2032.

Citi should also price $366.9 million of Dallas waterworks and sewer system revenue refunding bonds in taxable and tax-exempt series. The bonds, scheduled to arrive Tuesday, are rated AAA by Standard & Poor’s.

The taxable series, $106.9 million, should come structured as serials, maturing from 2013 through 2017, and from 2024 through 2027.

The tax-exempt series, $260 million, should arrive structured as both serials, maturing in 2013 through 2032, and terms, maturing in 2037 and 2041.

Rising muni yields might have played a role in the bump in volume this week, Domenic Vonella and Randy Smolik, of Municipal Market Data, wrote in a research post.

“The rush to the new-issue market is likely a result of the recent back-up in yields and a reflection of issuer’s preference to either refund or finance new projects before the opportunity dries up and before event risk in Q4,” they wrote.

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