The summer doldrums are officially over, as issuance in the municipal market is expected to surge this week.
Volume is almost double what the typical week has seen this year, with $8 billion coming to market, up from the average $4.6 billion issued weekly thus far in 2011. Issuance is also up from last week’s revised $6.2 billion, according to Thomson Reuters.
The negotiated calendar makes up the bulk of new issuance this week, with $6.61 billion slated for sale. It is up slightly from last week’s revised $4.14 billion.
California will come to market on Monday and Tuesday for retail and institutional investors with a total of $2.6 billion in three separate series.
The largest series consists of $1.28 billion of tax-exempt general obligation bonds, followed in size by a $1.3 billion series of tax-exempt GO refunding bonds, and a $25 million component featuring taxable GOs.
The taxable bonds will not be available to retail investors.
The lead book-runner on the deal is Bank of America Merrill Lynch. California is rated A1 by Moody’s Investors Service and A-minus by Standard & Poor’s and Fitch Ratings.
The state had a preliminary retail order period Friday and preliminary yields were favorable compared with the last time it came to market with a GO offering in November 2010, according to the California treasurer’s office.
The state said preliminary yields on a 20-year bond were 4.58%, 115 basis points over the Municipal Market Data scale.
Last year, the state priced its 20-year bond at 5.28%, 126 basis points over the MMD scale. On the 30-year bond pricing last Friday, the preliminary yield was 4.8%, or 110 basis points above the MMD scale.
Last November, the 30-year priced at 5.5%, or 114 basis points above the MMD scale.
Arizona’s Salt River Project Agricultural Improvement and Power District is issuing $265 million of electric system revenue bonds Tuesday.
Underwritten by Citi, the bonds are rated Aa1 by Moody’s and AA by Standard & Poor’s. The serial bonds have maturities ranging from 2011 to 2030.
Coming Thursday is $260 million of Hartford health care revenue bonds from the Connecticut Health and Educational Facilities Authority. The lead book-runner is Citi.
The bonds are rated A2 by Moody’s and A by Standard & Poor’s and Fitch. The serial bonds have maturities ranging from 2016 to 2019, with a term maturity in 2021.
While competitive issuance is taking a slight hit, two of the top three biggest deals of the week are coming via the competitive calendar. For the week, competitive deals are estimated at $1.42 billion, down slightly from last week’s revised $2 billion.
Massachusetts and Ohio are issuing $475 million and $300 million of GOs, respectively, on Wednesday. The Palm Beach County School District in Florida will also issue $115 million of bonds Wednesday.
This flood of issuance could see mixed reactions if last week’s pricing was any indication. While most deals were fairly well-received, a few took some price cuts.
MMD analyst Randy Smolik said several of last week’s deals came to market with concessions. “In the face of increasing supply, negotiated underwriters have to compete for attention,” he said. “The process naturally causes more concessions. But traditional buyer support is spotty at these low yields as well.”
Anthony Valeri, market strategist at LPL Financial, wrote in a note that demand for munis has been slightly lower recently.
“The decline in overall yields is the likely primary driver of the decrease in demand,” he said. “Lower yields may limit demand, and coupled with increasing supply, may pressure prices going forward.”