Higher Volume Led by NYC and Port Authority Refundings

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Large deals in New York and New Jersey -- led by New York City's $900 million general obligation bond refunding -- are expected to spark high demand this week due to their specialty state status despite an otherwise lackluster primary market dulled by the seasonal summer pullback in issuance.

Volume this week will increase to $6.67 billion, according to Ipreo LLC and The Bond Buyer, up about 24% from the revised $5.37 billion that Thomson Reuters reported came to market last week.

Howard Mackey, vice chairman of Rice Financial Products, said the size of the NYC GO refunding deal should help its pricing, even though bonds have been trading at "very aggressive levels over the past number of weeks."

"We have seen trades that I haven't seen in some time -- 36 or 38 [basis points] to the MMD," he explained on Friday.

"The fact that such aggressive numbers have been paid for New York City [bonds] means there is demand for the product," Mackey added.

Bank of America Merrill Lynch will price the NYC GO sale on Wednesday, after a retail order period on Monday and Tuesday with a two-pronged structure consisting of $727 million of bonds maturing between 2016 to 2034, and $172 million maturing between 2015 to 2034.

Both series are rated Aa2 by Moody's Investors Service and AA by both Standard & Poor's and Fitch Ratings.

"It's one of the biggest specialty states with not a lot of supply, next to California," Mackey said. "I expect there's going to be demand, and if priced right, will do well."

The same holds true for the sale of $833.78 million of Port Authority of New York and New Jersey refunding bonds slated for pricing by Citi on Thursday, following a Wednesday retail order period. The deal consists of $481.12 million of bonds subject to the alternative minimum tax that will mature serially from 2015 to 2034 and $352.66 million of non-AMT bonds maturing serially from 2016 to 2034, as well as a term bond maturing in 2039.

The Port's deal is exempt in both states and [the authority is] an infrequent issuer, according to Mackey, who said that will lead to strong appeal. "It's a name that's approved by most major funds and insurance companies, and with that kind of large institutional demand for that deal, it should do very well," he added.

Overall, the market should be able to sustain the slight increase in volume expected this week after finishing "fairly steady" last week amid firmness in the 10 and 30-year benchmarks tracked by Municipal Market Data, Mackey said.

"Given the fact that it's August, which would be fairly lackluster, an increase in the calendar and firmness in rates, which are drifting down, speaks well for the strength of the municipal market," Mackey explained.

On Friday, the 30-year benchmark triple-A GO closed at 3.20% after starting the week at 3.29%.

Mackey expects overseas tensions to continue to contribute to the strength of the U.S. bond markets. "With the looming crisis in the Ukraine and the Mideast and the flight to quality, we have gotten the benefit of those positive moves and I believe, with that unrest, we will continue to see some firmness over the next few weeks," he said.

Outside of New York, Minnesota will sell $903 million of GO debt in a five-pronged issueheaded for the competitive market on Tuesday.

The deal consists of: $438.0 million of GO various purpose bonds maturing from 2015 and 2034; $288 million of GO state trunk highway bonds maturing from 2015 to 2034; $123.39 million of GO state trunk highway refunding bonds; $28.25 million of GO taxable various purpose refunding bonds maturing from 2015 to 2032, as well as $26.1 million of GO taxable various purpose GO bonds maturing from 2015 to 2033.

Other somewhat sizable deals slated for this week include Michigan's sale of $266 million of trunk line fund bonds on Wednesday in a Citi-led deal structured to mature from 2015 to 2021. The bonds are rated AA-plus by Standard & Poor's.

Also a sale of $230 million of unlimited tax road refunding bonds by Harris County, Tex., is planned for pricing by book-runner Goldman Sachs & Co. on Wednesday. The bonds, which will retire all or a portion of outstanding Series C GO commercial paper notes, are rated triple-A by both Moody's and Fitch, and are structured to mature serially from 2015 to 2021 and from 2025 to 2034.

The Philadelphia Industrial Development Authority is on tap to issue $200 million of hospital revenue bonds for the Children's Hospital of Philadelphia Project. JPMorgan Securities will price the deal on Wednesday. However, the structure was still being finalized at press time.

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