Municipal volume is forecasted to rise in the holiday-shortened week, with three of the four biggest deals tied to oil.
"It will be interesting to see if there will be any investor hesitancy in any of the deals, with the oil prices being what they are right now," said Dan Heckman, senior fixed income strategist at U.S. Bank Wealth Management. "We will see if the spreads widen or if there is any trouble placing all the bonds."
The estimated total volume to arrive into the primary market is $7.82 billion, according to Ipreo LLC and The Bond Buyer, led by transportation and oil deals from Texas, Alabama and Louisiana. Projected volume is up from $5.76 billion that priced in the week ended Jan. 16, according to Thomson Reuters.
"It's not surprising to see a tick up in issuance and I think the calendar will continue to build through the remaining weeks of this month," Heckman said.
Trading will be limited to four days because the market observes Martin Luther King's Birthday. While municipal bonds have rallied, oil is on its longest losing streak since 1986, according to Bloomberg.
The Texas Transportation Commission for the Central Texas Turnpike System is coming to market with a total of $1.75 billion of first and second tier revenue refunding bonds to be priced by Barclays Capital on Thursday.
The deal is expected to reduce maximum annual debt service on the system's toll road bonds by more than 28% through the refunding. The deal will refinance nearly all of the Central Texas Turnpike System's outstanding debt.
The deal includes $225 million of first tier revenue refunding put bonds, followed by $225 million of first tier revenue refunding bonds and $1.30 billion of second tier refunding revenue bonds. The second-tier bonds carry new ratings of Baa1 from Moody's Investors Service, BBB-plus from Standard & Poor's, and BBB from Fitch Ratings. The first-tier bonds earned upgrades from Moody's and Fitch. Moody's raised its rating to A3 from Baa1 while Fitch said it expects to upgrade its BBB-plus rating to A-minus when the deal closes in February. S&P affirmed its A-minus rating.
Morgan Stanley will be in charge of pricing the second biggest deal, the Alabama Federal Aid Highway Finance Authority's $508.475 million special obligation revenue bonds on Wednesday. The deal is rated Aa1 by Moody's and AAA by S&P.
Continuing with the oil theme, Louisiana Gas & Fuels is coming to market with $460 million of first and second lien revenue refunding bonds, which is expected to be priced on Thursday by Citigroup. It is rated Aa1 by Moody's for the $412 million first lien bonds and Aa2 for the $48 million second lien bonds.
On competitive side, Washington state is offering $460.195 million of various purpose general obligation refunding bonds, that are going up for bid on Wednesday. The deal is scheduled is mature serially from 2015 to 2033 and is rated Aa1 by Moody's and AA+ by both S&P and Fitch.
Washington state is also bringing one other various purpose general obligation bonds to the market on Wednesday for $282 million issue, which is scheduled to mature serially from 2022 to 2044 and is rated Aa1 by Moody's and AA+ by S&P and Fitch.
Among negotiated deals from the west coast, JPMorgan is expected to price a $442 million water revenue bond for East Bay Municipal Utility District on Thursday. The deal is rated Aa1 by Moody's, AAA by S&P and AA+ by Fitch.
"There is a lot of cash flow in munis. Even though rates are low it's sinking in that rates might not go up, so people are being dragged into the market," said a portfolio manager. "I think it will continue for a while and it will be hard to break the psyche that rates won't be going up anytime soon."
In other large deals coming this week, Michigan Finance Authority plans $402 million of hospital revenue refunding bonds. The deal will be priced by RBC Capital markets on Tuesday and is rated A1 by Moody's and A by S&P.
JPMorgan is slated to price an offering by Yale University on Wednesday, a $400 million putbond.
The city of San Antonio Water System is bringing $291 million of water system junior lien revenue and refunding bonds to market on Thursday. The deal is scheduled to be priced by Wells Fargo Securities and to mature serially from 2015 to 2045. The deal is rated Aa2 by Moody's and AA by both S&P and Fitch.
