Investors famished for yield will turn to the $99.1 million Dallas-Fort Worth international airport joint revenue refunding bonds this week, traders said.
A trader in Dallas said the deal will receive a lot of attention because airport credits habitually price with a bit more yield than general obligation bonds or essential service credits.
Investors predict hunger for the DFW bonds will be amplified this week in particular because they expect the scheduled low volume will make yield scarce and cause deals to come aggressively in the primary. There is only $2.53 billion issuance expected for this week, down from $3.5 billion last week, according to data provided by Ipreo and The Bond Buyer.
"[DFW] has a bit of yield compared to the high-grade stuff," the trader in Dallas said.
The bonds are scheduled to price on Wednesday, and are rated A-plus by Standard & Poor's and AA-minus by Fitch Ratings.
DFW last came to market with a non-AMT issuance in June and the bonds received fairly high demand. Yields on the $124.3 million deal ranged from 1.20% in 2018 to 4.06% in 2045.
"DFW is 20 [basis points] wider than any other A credit out there," a trader in the Midwest said.
A trader in Chicago said bargain hunters are always looking for deals with yields like DFW bonds have.
The trader in Dallas said there will also be demand for the bonds because DFW is a frequent issuer, making the bonds liquid in the secondary.
"It's come to market five times this year [with Wednesday's deal included]," the trader noted. He said DFW had two prior AMT issuances in July and May, and a non-AMT deal in February in addition to the June sale mentioned previously.
The trader in Dallas believes the deal will "do well" because DFW bonds' spread to the MMD comes tighter with every issuance.
"I think you'll see tight to triple A scale as ever seen before," he said.
The trader in the Midwest attributed DFW's success this year to primarily market technicals though.
"I think any solid A credit with spread has traded tighter this year, it's a function of the market in general," he said. "It's a yield grab for sure. Customers are in a constant battle with duration and outright yield."
This year's low supply has driven up demand for bonds, driving down their yields. Supply has totaled $177.2 billion as of July 31st this year compared to $209.2 billion during the same period last year.
Municipal bond yields opened steady across the curve on Monday, according to Municipal Market Data's triple-A scale.
The 10-year and 30-year Treasuries strengthened by one basis point each to 2.39% and 3.14% respectively from Friday. The two-year note weakened by two basis points to 0.51%.
