The third quarter kicks off on Tuesday with municipal issuance expected to decline from last week, helping to keep supply and demand in balance.
Recent strong demand for large, high-quality, recognizable names should bode well for the more than $3.46 billion of new deals on this week’s calendar for the long-term market, as reported by Ipreo LLC and The Bond Buyer, highlighted by a $900 million financing for Chicago’s O’Hare International Airport.
Volume will be down roughly $1 billion from the prior week, consistent with recent data from Thomson Reuters that show municipal issuance fell 32% in September and 13% year to date.
Last week, Thomson reported a revised slate of $4.37 billion came to market -- the largest of which was a $2.6 billion Regents of the University of California sale of general revenue bonds whose final 2038 maturity was oversubscribed on Wednesday. The split coupon maturity carried a 4.50% coupon with a 4.60% yield, as well as a 5% coupon and 4.34% yield at the same time that the generic, triple-A general obligation bond in 2038 yielded a 4.03%, according to Municipal Market Data.
The benchmark, 30-year triple-A GO ended on Friday unchanged for a third day in a row at 4.11%, according to MMD.
Hoping to capitalize on what has proved to be a consistently flat to firmer tone in the municipal market since Sept. 6,Chicago is is set to dominate this week’s new-issue activity with its sale of general airport senior lien revenue and refunding bonds from O’Hare.
JPMorgan Securities LLC will price the offering on Wednesday with an A-minus rating from Fitch Ratings. Ratings from Moody’s Investors Service and Standard & Poor’s were not available at press time.
Refunding bonds consist of $371.12 million of Series A bonds subject to the alternative minimum tax, and $133.62 million of Series B non-AMT bonds. The new-money portion is comprised of $80 million of Series C AMT paper, and $314.33 million of Series D non-AMT securities. The maturity structure includes serial and term bonds which will mature from 2014 to 2044.
The recent market strength helped deals get done last week and should support demand for large new issues going forward, such as the O’Hare deal, a Chicago trader said.
From May 1 to Sept. 5, the 10-year MMD yield increased 138 basis points and the 30-year yield rose 172 basis points. Since Sept. 5, the 10-year yield fell 50 basis points and the 30-year yield dropped 40 basis points.
“This week was the best week to price a deal in three months,” the trader said on Friday. “New deals next week will be priced to sell,” he added. “We have turned the corner and have seen things pick up a little bit. There’s not a lot of supply and things are starting to turn posititve.”
Outflows are still negative, yet subsiding, and some cross-over buyers are chasing relatively attractive value in the municipal market.
“What the Fed said was positive for the bond markets -- at least temporarily,” the trader said referring to the Federal Reserve Board’s recent decision to delay tapering its monthly $85 billion bond buying stimulus program.
In other activity, Connecticut will issue $575 million of GO debt on Thursday following a retail order period on Wednesday by Ramirez & Co. The deal is expected to carry ratings of Aa3 from Moody’s and AA from both Standard & Poor’s and Fitch, as well as a AA rating from Kroll Ratings.
The California State Public Works Board will sell $473 million of lease revenue bonds on Wednesday following a retail order period on Tuesday. Siebert, Brandford Shank & Co. will price two series for correctional facilities projects rated A2 by Moody’s and A-minus by Standard & Poor’s and Fitch, as well as one series for various projects at the California State University rated Aa3 by Moody’s and AA-minus by the two other major rating agencies.
Meanwhile, a $344.9 million financing from the Washington Tobacco Settlement Authority will price Tuesday by Barclays Capital Inc. with a structure that includes serial bonds maturing from 2014 to 2033 with a term bonds in 2036.