Moderately heavier issuance is expected to meet a municipal market loaded with cash and hungry for paper.
The market anticipates $7.68 billion in volume this week, against $5.12 billion last week. Yields may be near historic lows, but they’re attractive enough, muni analysts and portfolio managers say. Investors see a market with sound technicals and a relatively strong tone.
Demand is tremendous as there are more bonds maturing and interest payments coming due than there are bonds being issued, industry pros say. Investors are encouraged by hearing states talk about realigning their budgets, as well as other large issuers being fiscally responsible.
“The institutions, such as insurance companies and mutual funds, are cash-rich,” said Josh Gonze, co-portfolio manager at Thornburg Investment Management. “So, an upward blip in supply gets swallowed up like it wasn’t even there.”
Boring down into the numbers, $1.52 billion in competitive offerings are scheduled for sale, compared with a revised $1.90 billion last week. In addition, $6.16 billion in negotiated deals is slated for sale, versus a revised $3.22 billion last week.
The negotiated calendar almost doubled this week. A large deal from California should lead the charge for the second straight week. Morgan Stanley is expected to price $1.3 billion of various-purpose general obligation refunding bonds. The bonds are rated A1 by Moody’s Investors Service and A-minus by Standard & Poor’s and Fitch Ratings. They are expected to arrive on Thursday.
The California deal caught the eye of Dominic Nori, chief executive officer at Private Wealth Management, an independent firm. The size of the deal alone makes it important, coupled with the fact that the market is feeling better in general about paper the state is issuing, he said.
“California is on a stable credit watch, from a negative credit watch,” Nori said. “It’s just starting to come into its own again. That’s one to keep a close eye on.”
Barclays Capital should price $800 million of New York City Transitional Finance Authority future tax-secured bonds and subordinate bonds. The credits are rated Aa1 by Moody’s and AAA by S&P and Fitch.
The deal is expected to reach the market Monday in a two-day retail order period. Institutions have their opportunity on Wednesday. The bonds are expected to be structured as term and serials.
Barclays is expected to price $675 million of Virginia Small Business Financing Authority senior-lien revenue bonds for the Elizabeth River Crossings OPCO project. The bonds are rated BBB-minus by Standard & Poor’s and Fitch. They are expected to come to market on Tuesday, structured as term and serials.
Barclays should price $555 million of tax-exempt and taxable Connecticut GOs in three series, rated Aa3 by Moody’s and AA by S&P and Fitch.
They will be broken down into $212.4 million of tax-exempt GOs, $259.6 million of tax-exempt SIFMA index GOs and $83 million of taxable GOs. The bonds, which should arrive Thursday after a two-day retail order period, are structured as serials.
Morgan Stanley is expected to refund $475 million of Puerto Rico Electric Power Authority revenue bonds. They are rated Baa1 by Moody’s and BBB-plus by S&P and Fitch.
The week’s competitive calendar weighs in a tad lighter than last week’s. Los Angeles on Tuesday is expected to auction $277.7 million of GO refunding bonds. They are rated Aa3 by Moody’s and AA-minus by Standard & Poor’s and Fitch. The bonds should be structured as serials.
The Maryland Transportation Authority on Wednesday should auction $211.4 million of airport parking revenue refunding bonds in two series. They are rated A by S&P and are expected to be structured as serials.