Municipal bond issuance this week is expected to subside slightly.
Potential volume estimated for this week should total $8.11 billion, against $9.03 billion last week. Issuers from New York are bringing to market many of the week’s largest deals.
Those include a $1.1 billion deal from the New York State Thruway Authority, a $1 billion issue from the Metropolitan Transportation Authority and a $500 million deal from the Long Island Power Authority. Los Angeles should also see $1.26 billion of tax and revenue anticipation notes.
The market has been absorbing healthy calendars over the past few weeks with only modest concessions to yields.
One of the main reasons for this is that investors are neck-deep in heavy cash flows they are receiving from reinvestments and coupon repayments this month and they need to put it to work.
The numbers show that there is $6.49 billion of muni bond sales scheduled for the negotiated side of the market this week, versus a revised $7 billion that were sold last week.
Bonds scheduled for competitive sale this week total $1.62 billion, compared with $2.03 billion last week.
This week’s calendar is heavily weighted with New York issuers, which is one of the states that often issues when there’s a supply-demand imbalance, according to Sean Carney, BlackRock’s municipal strategist.
“They seem to come to market when seasonals are favorable,” he said. “Also, New York is one of the states where a lot of money is going back to investors. So, there will be a lot of demand for New York paper.”
Loop Capital Markets leads the negotiated market with the expected pricing of $1.26 billion of Los Angeles Trans. The notes, expected Tuesday, are rated MIG-1 by Moody’s Investors Service and F1-plus by Fitch Ratings.
Citi is expected to price $1.10 billion of Thruway Authority general revenue bonds. The bonds are rated A1 by Moody’s and A-plus by Standard & Poor’s.
The debt is expected to arrive Tuesday, structured as both serials, maturing in 2014 through 2032, and terms in 2037 and 2042.
Bank of America Merrill Lynch should price $1 billion of MTA transportation revenue refunding bonds. The bonds are rated A2 by Moody’s and A by Standard & Poor’s and Fitch.
There is a retail order period scheduled for Wednesday. Institutions may participate starting Thursday. The MTA said it anticipated the issue to have a predominantly serialized structure.
Oregon is expected to price $642.9 million of full-faith-and-credit tax anticipation notes. The debt is rated MIG-1 by Moody’s and F1-plus by Fitch.
B of A Merrill is also expected to price $524 million of Washington Health Care Facilities revenue bonds for Providence Health & Services. The bonds are rated Aa2 by Moody’s and AA by Standard & Poor’s and Fitch. The bonds are expected on Wednesday, structured as both serials, maturing in 2012 through 2018, and terms, maturing in 2032, 2037, 2037, and 2042.
On the competitive side of the ledger, the North Texas Municipal Water District is expected to auction $358.8 million of water system revenue refunding and improvement bonds. The debt is rated Aa2 by Moody’s and AAA by Standard & Poor’s.
The bonds should arrive Thursday, structured as serials, maturing in 2013 through 2032.
Seattle on Tuesday is auctioning $298.2 million of municipal light and power improvement and refunding revenue bonds. The bonds are rated Aa2 by Moody’s and AA-minus by Standard & Poor’s.
The debt is scheduled to arrive as serials with maturities in 2013 through 2028, as well as in 2034 through 2039.
This week’s volume is largely keeping to this year’s trend, according to Carney.
“When you look at the issuance, the composition is what we’ve been used to seeing — a decent amount of refundings, and the new-money issues are coming from pretty consistent issuers, well-known names,” he said. “The market is set up well to absorb it.”
One of the reasons for that stems from the confidence that more investors have in the municipal market this year. More non-traditional investors have been encouraged recently to add muni bonds to their portfolios.
In California, Paul Montaquila, vice president of fixed income for San Francisco-based Bank of the West, said inquiries for tax-exempts among his clients have increased noticeably.
“We saw how last year the muni bond market had such a phenomenal year, and the headline risk was taken off the table,” he said. “So munis have become a safe haven — they’re the next place to go. The corporate market is incredibly overbought. Treasury rates and agency rates are miniscule. We’ve definitely noticed some customers saying they want to go to the muni market now.”