Pennsylvania Leads Small Volume Surge With $950M

The municipal market can anticipate a slight uptick in volume this week before smaller calendars are expected to close out the month.

Industry estimates place the total for muni bonds expected to be sold this week at $7.45 billion, versus a revised $6.43 billion last week.

The week’s largest deal sits on the competitive side of the ledger, where Pennsylvania expects to auction $950 million of general obligation bonds on Tuesday.

But none of the week’s deals are likely to set the tone for the market, according to Tim Pynchon, a portfolio manager at Pioneer Investments.

“There’s nothing I see in the offing for the week of April 16 that is a large bellwether deal,” he said. “There’s a $600 million [Metropolitan Transportation Authority deal]. But that’s New York, and so I’m anticipating there’s going to be strong demand for it.”

The new issuance should reach a muni market that saw a strong rally early last week, followed by a modest backup. That left the benchmark 10-year triple-A yield hovering around the 2.00% barrier. The market is positioned to absorb this week’s slight uptick, Pynchon said.

“We started to see some backup a few weeks ago with some heavier new issuance,” he said. “That softer tone is nowhere to be found right now. As we look forward into the end of April, it seems as though we’re marching forward to lower yields and higher prices.”

A closer examination of the numbers shows that $2.32 billion of competitive offerings is scheduled, compared with a revised $1.47 billion last week. Also, $5.13 billion of negotiated deals is slated, versus a revised $4.96 billion last week.

“Until something comes to interrupt it, and I don’t know what that exogenous factor will be, we’re going to see a strong tone to the market as we move through the second quarter here,” Pynchon said.

The competitive calendar leads with the week’s biggest issue. Pennsylvania is expected to offer $950 million of GOs. The bonds, which should be up for bid on Tuesday, are rated Aa1 by Moody’s Investors Service, AA by Standard & Poor’s and AA-plus by Fitch Ratings. They are expected to come structured as serials, from June 2013 through June 2032.

The Virginia College Building Authority follows with an expected sale of $320.7 million of educational facilities revenue bonds for 21st Century college and equipment programs. The bonds are set to arrive on Tuesday structured as serials from February 2013 through February 2032.

Wells Fargo weighs in with the largest deal in the negotiated calendar. The bank is expected to price $600 million of New York MTA transportation revenue bonds. They are rated A2 by Moody’s and A by S&P and Fitch. The bonds, which should reach the market on Monday, will be structured as serials and terms.

Bank of America Merrill Lynch is expected to price $491.8 million of Atlanta airport general revenue bonds in three series. They are rated A-plus by all three agencies. The bonds, which should arrive Tuesday, are expected to be structured as both serials and terms.

They should range from January 2013 through January 2032, with additional maturities on January 2037 and 2042. One series is subject to the alternative minimum tax.

Morgan Stanley is expected to price $352.1 million of Ascension Health Alliance senior-credit group revenue bonds divided among four states. The bonds are rated double-A-plus by all three agencies.

The bonds, which are set to show up on Wednesday, are expected to be structured as serials. They should break down to $132 million for Illinois, $89 million for Wisconsin, $87 million for Maryland and the balance for Tennessee. There is also expected to be an additional $96 million of five-year put bonds.

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