Large deals from Illinois and New York lead the new-issuance charge in the municipal market this week.
Total potential volume is expected to climb to $8.14 billion this week from total sales of $6.86 billion last week. The volume will reach a tax-exempt market weighted with low nominal yields, favorable muni ratios to Treasuries and strong investor demand.
Two deals that total in excess of $1 billion of tax-exempt and taxable paper sit on the ledger. The Illinois Department of Employment Security expects to price $1.49 billion in the negotiated market, while the Dormitory Authority of the State of New York expects to auction $1.04 billion in the competitive space.
Diving into the muni volume numbers, there are $5.78 billion of municipal bonds scheduled for negotiated sale this week, versus a revised $5.30 billion that were sold last week. Bonds scheduled for competitive sale this week total $2.36 billion, compared with $1.56 billion last week.
Investors, coming from a light holiday week, are looking for paper. Thus, the amount for this week looks manageable, said Mario DeRose, fixed-income strategist at Edward Jones, a firm that looks at bonds for its clients from states that typically are light issuers.
“We should be able to put that [amount] away without too much issue,” he said.
Duane McAllister, co-manager of the BMO Intermediate Tax Free fund at BMO Global Asset Management U.S., agreed it seems a manageable level, given the amount of cash muni investors have on the sidelines.
“People are still reinvesting their July 1 roll-off, maybe some of the June 1 roll-off, or anticipating the Aug. 1 roll-off,” he said. “There just seems to be lots of cash here to be put to work.”
JPMorgan and Citi lead the negotiated market and expect to price $778 million and $714 million, respectively, of Illinois Department of Employment Security unemployment insurance fund building receipts revenue bonds. The bonds, anticipated on Wednesday, are rated AA by Standard & Poor’s and AA-plus by Fitch Ratings.
The JPMorgan series is expected to arrive structured as serials, with semi-annual maturities from 2013 to 2016. Citi’s two series should arrive as serials, maturing in 2017 to 2020, and in one term, in 2021.
McAllister said BMO, which tends to look away from some of the largest credits, nevertheless is intrigued by the Illinois deal. He noted that there should likely be a bit more yield on it than the week’s other large deals.
“It seems to be a pretty strong credit,” he said. “And it’s an opportunity to buy a strong credit in a state that typically trades cheaper. We all know the troubles of Illinois, but here’s sort of a new credit within that state. So, you could see a fair amount of interest in it.”
JPMorgan is also expected to price $541 million of Miami-Dade County transit system surtax sales revenue bonds. The bonds are rated A1 by Moody’s Investors Service, AA by Standard & Poor’s and AA-minus by Fitch. They are expected to arrive Thursday. They should be structured both as serials, maturing in 2015 through 2032, and terms, maturing in 2037 and 2042.
In the competitive market, the DASNY deal leads all issues as the agency expects to auction $982.5 million of general-purpose New York State personal income tax revenue bonds on Tuesday. The bonds are rated AAA by Standard & Poor’s and AA by Fitch. They should arrive structured as serials, maturing from 2014 through 2035.
DASNY is also expected on Tuesday to auction $61.9 million of taxable general purpose state personal income tax revenue bonds. They should arrive structured as serials, maturing in 2014 to 2022.
Washington is expected to auction four issues of general obligation bonds on Wednesday that total $590.6 million. Each is rated Aa1 by Moody’s and AA-plus by Standard & Poor’s and Fitch.
The first two deals, $274.1 million of various-purpose GOs and $197.4 million of motor vehicle fuel tax GOs, are tax-exempt. The other two, $78.5 million of GO refunding bonds and $40.6 million of GOs, are taxable.
