State and local municipalities are preparing to pare down issuance this week after an eventful week in which the tax-exempt market saw repeated softness, a second large financing in as many weeks was postponed, and the Federal Open Market Committee announced it would stand pat, .
An estimated $4.78 billion in new volume is slated to be priced this week, according to The Bond Buyer and Ipreo LLC. That is noticeably lower than in the previous week when a revised $5.98 billion entered the market, according to Thomson Reuters.
“We see the market as entering a consolidation phase for the next few days until the Street works their way out of the underwater inventory they have,” said Michael Pietronico, chief executive officer of Miller Tabak Asset Management.
The single largest deal this week hails from the competitive calendar and is a $490 million general obligation sale by Santa Clara County, Calif., slated for Thursday.
The week’s second-largest offering is also competitive, $325 million of triple-A-rated Prince George’s County, Md., limited-tax consolidated public improvement GOs. The deal is comprised of $137.59 million of new-money bonds and $186.48 million of refunding bonds, both pricing on Tuesday.
The reduced volume is more evident in looking at the upcoming negotiated volume, which will be reduced to an estimated $2.95 billion, according to The Bond Buyer, down from $4.37 billion the prior week, according to Thomson Reuters figures.
The largest deal on the negotiated calendar is a $208.1 million sale from the Phoenix Civic Improvement Corp. of senior-lien airport revenue refunding bonds that are subject to the alternative minimum tax. Barclays Capital is expected to price the bonds — which are rated Aa3 by Moody’s Investors Service and AA-minus by Standard & Poor’s — on Tuesday.
In addition, Connecticut is planning to sell $200 million of state revolving fund general revenue bonds that are slated for pricing by Bank of America Merrill Lynch on Wednesday, following a retail order period planned for Tuesday. The bonds have natural triple-A ratings and the deal is comprised of $123.48 million of new-money debt in Series A maturing serially from 2014 to 2031, and $77.51 million in refunding debt in Series B maturing serially from 2017 to 2027.
The new issues will arrive on the coattails of last week’s softness when prices fell in many of the trading sessions on most maturities, traders said. As of Wednesday, the 30-year generic, triple-A general obligation yield inched up three basis points to 2.87%, while the 10-year generic scale increased two basis points to 1.82%, according to Municipal Market Data.
“While we would like to see yields higher like most everyone else, the correction that has happened in municipals has created some value, especially in lower coupon bonds,” Pietronico said. Those lower coupon bonds were found in some of last week’s deals.
Among the larger GO reofferings last week, Citi won the bid for $325.6 million of triple-A-rated North Carolina bonds, whose yields ranged from 0.17% with a 3% coupon in 2013 to 2.03% with a 5% coupon in 2025. The final maturity was priced three basis points higher in yield than the comparable triple-A GO scale on the day of the pricing, according to MMD.
Last week was also the second consecutive one in which a large new deal was postponed just before making a planned trip to market. This time it was Illinois’ competitive $500 million GO sale, which was expected to price last Wednesday, but is now on hold indefinitely due to a myriad of concerns, notably a Standard & Poor’s downgrade.
During the week of Jan. 21, legal complications surrounding an Ohio Supreme Court appeal delayed the pricing on Jan. 23 of a nearly $2 billion JobsOhio Beverage System financing.
The two-series deal ended up being priced last Monday and Tuesday. The financing was comprised of $1.1 billion of taxable statewide senior lien liquor profit revenue bonds in Series 2013 B that included a final 2025 maturity with a 4.53% coupon priced at par; and $404 million of tax-exempt senior lien liquor profit revenue bonds that were priced with a final maturity in 2038 with a 5% coupon to yield 3.34% — 58 basis points higher in yield than the comparable triple-A scale at the time of the pricing, according to MMD.
In other noteworthy news last week, the FOMC announced it will keep the target rate for the federal funds rate at zero to 0.25%, and reiterated its stance that rates will continue to stay low as long as unemployment remains above 6.5% and inflation is projected to stay under 2.5%.
The release of any other data could have an effect on volume going forward, sources said.
“Given that issuers, including Illinois, are looking for better conditions to borrow, investors may find that supply in the near-term could dry up quickly if the economic data weaken in the days ahead,” Pietronico said.