Weekly municipal bond volume is forecast to jump 70% in the coming week, providing a measure of relief to a supply-starved market.
Volume is expected to total $6.5 billion, up from $3.82 billion last week, according to The Bond Buyer and Ipreo's data. The biggest deal coming to market is a $900 million issue of Los Angeles County tax and revenue anticipation notes scheduled to price on Wednesday.
Market participants said demand is sufficient to sop up the new supply and that investors will focus on the LA deal in particular.
"The close to billion dollar LA [deal] is going to do very well because annual supply is down," Jim Colby, chief municipal strategist at Van Eck Global, said in an interview.
Volume year-to-date has plunged to $109.32 billion as of May 30 from $152.98 billion for the same period last year, according to The Bond Buyer and Ipreo data.
"LA in an investable credit," Colby said. "The deal has good quality and size. Size attracts a variety of different buys. This deal will get long-bond funds as well as [Separately Managed Accounts], as well as retail. It will be well spoken for in the end."
The nextlargest issuances scheduled to price are negotiated deals, led by $431 million of Colorado Regional Transportation District certificates of participation bonds, with JPMorgan Securities as lead underwriter. The bonds earned an Aa3 rating from Moody's Investors Service and A marks from both Standard & Poor's and Fitch Ratings.
Morgan Stanley is also pricing $340 million of Miami-Dade County Expressway Authority toll system refunding revenue bonds that received A3 from Moody's and A-minus from Standard & Poor's and Fitch.
"The transportation sector continues to lead the way," Dorian Jamison, municipal analyst at Wells Fargo Advisors, wrote in a report released on Thursday. "Transportation bonds, as tracked by the S&P Transportation Index, have returned 6.8 percent year-to-date outperforming the broader municipal market, which has returned 5.7 percent, as tracked by the S&P Municipal Bond Index. Value conscious investors may want to consider increasing positions in single-A rated or better transportation bonds."
Fred Bacani, Head of Fixed Income & Trading at Veritable LP in Newtown Square, Pa., said that investors were driven to transportation bonds less because of the sector's performance than due to the market's current "herd mentality".
"Overall you're seeing a bit of herd behavior among investors as they search for value," he said in an interview. "They are looking for the cheapest alternative out there, whether in structure, sectors, or low quality credits. They are moving to the next cheapest thing out there on a risk-adjusted basis.
The Port of Long Beach is expected to bring $320 million harbor revenue short term notes to market that have Citigroup Global Markets as the lead underwriter and were rated AA by S&P and Fitch.
In the competitive market the Metropolitan Atlanta Rapid Transportation Authority is scheduled to auction $274 million of revenue bonds on Thursday, and Columbus, Ohio, is expected to sell $258.3 million bonds on Wednesday.
