December is traditionally a strong month for municipal bond issuance, and the first two weeks appear to be hewing closely to the playbook.
The muni bond market should expect a hefty calendar this week to the tune of an anticipated $11.61 billion of total volume. That’s up from total sales of $8.99 billion last week.
The bump in issuance shouldn’t pose a problem to the market, according to Bill Walsh, president of Hennion & Walsh, a wealth manager and muni specialist based in New Jersey.
“Overall, with supply and demand, we’ll be able to absorb it,” he said. “With the fiscal cliff and the potential changes in taxes, you would certainly see demand. Retail is definitely buying. They won’t be able to put away $11-or-$12 billion, but they’re buying.”
Taking a closer look at the numbers, there are $9.45 billion of municipal bond sales scheduled for negotiated sale this week, versus a revised $6.78 billion that were sold last week. Bonds scheduled for competitive sale this week total $2.16 billion, compared with $2.21 billion last week.
For the negotiated side of the calendar, Citi is expected to price $1.19 billion of Iowa Finance Authority Midwestern disaster area revenue bonds for the Iowa Fertilizer Company project. The bonds are rated A-1-plus by Standard & Poor’s.
The authority must conclude the deal ahead of a year-end deadline. It is using a structure with a put in April in 2013. Afterward, the authority will remarket the bonds. The bonds should arrive on Tuesday.
Citi also should price $850 million of New York City general obligation bonds. They are rated Aa2 by Moody’s Investors Service and AA by Standard & Poor’s and Fitch Ratings.
A two-day retail order period began Friday. Institutions can participate starting Tuesday. The bond should arrive structured as serials maturing in 2013 through 2033.
New York is refinancing bonds previously sold for capital projects, said Scott Sieber, spokesman for New York City Comptroller John Liu’s office. The city has bonds that are good candidates for refinancing at lower rates, he added, and market conditions are favorable.
“We are refinancing bonds previously sold for capital projects,” Sieber said. “The city only borrows for capital projects with a useful life of five years or greater. The debt is used for schools, parks, roads and other infrastructure needs.”
JPMorgan expects to price $781.4 million of California Pollution Control Financing Authority water furnishing revenue bonds, plant bonds and series 2012 pipeline bonds. The bonds, which are expected Thursday, are rated Baa3 by Moody’s and BBB-minus by Fitch.
The deal breaks down into $559.9 million of water furnishing revenue bonds for the Poseidon Resources LP desalination project subject to the alternative minimum tax and $221.5 million of water furnishing revenue bonds for the San Diego County Water Authority desalination project pipeline.
On the competitive side of the ledger, the Virginia Housing Development Authority expects to auction $560 million of commonwealth mortgage bonds. The bonds are rated Aaa by Moody’s. They are expected to arrive Tuesday and to mature in 2038.
Several industry estimates for 2012 volume top out around $370 billion. But volume numbers will likely fall next year, according to Chris Mauro, head of U.S. municipals strategy at RBC Capital Markets, which forecasts about a 10% reduction issuance in 2013 from 2012’s expected total.
Refunding activity largely accounted for the jump in volume this year over 2011 numbers, but that won’t likely be the case in 2013. Although RBC expects new money deal numbers to rise next year, it won’t be enough to compensate for the steeper expected drop-off in re-fi issuance.
“Despite continued fiscal austerity at the state and local levels, we anticipate that pent-up demand will push new money issuance up approximately 15% to about $185 billion in 2013 from an estimated $160 billion in 2012,” Mauro wrote in a research post. “Conversely, we expect that refunding activity will drop to approximately $140 billion from about $210 billion in 2012, as the abundance of advance refunding transactions executed in 2012 has significantly reduced the pool of eligible refunding bonds for 2013.”