The municipal market should expect a welcome, though moderate, uptick in new issuance this week.
Anticipated volume will be $5.78 billion, up from $4.34 billion last week. Two separate deals out of California and New Jersey totaling more than $1 billion each will pace the market.
The market is in decent shape to absorb the increase, thanks to the backup and subsequent rally muni yields have experienced since mid-month, industry pros said. They see momentum on the buy side and favorable relative values to Treasuries, positioning the market to take in what they see as a manageable supply and assist price discovery, said John Dillon, chief municipal bond strategist for Morgan Stanley Smith Barney.
“The uptick in issuance is a healthy development for the market,” he said. “Usually you get a lot of pressure coming up to the tax date. But a lot of that pressure was mitigated by the fact that we had such a significant correction weeks ago. And we’ve rallied off that big sell-off, so we have decent buy-side momentum.”
Digging deeper into the estimated numbers, there should be $4.06 billion of municipal bonds scheduled for negotiated sale this week, versus a revised $3.49 billion that were sold last week. Bonds scheduled for competitive sale this week are expected to total $1.72 billion, compared with $849.2 million last week.
On the negotiated side, Citi is expected to price $1.5 billion of California Statewide Communities Development Authority revenue bonds for Kaiser Permanente. The bonds are rated A-plus by Standard & Poor’s and Fitch Ratings. They are expected to arrive Wednesday.
Bank of America Merrill Lynch trails with an anticipated $1.08 billion of New Jersey Economic Development Authority cigarette-tax revenue refunding bonds. The bonds are rated Baa1 by Moody’s Investors Service and BBB-plus by Standard & Poor’s and Fitch.
A retail order period is expected on Monday, with institutions getting their opportunity a day later. The bonds are expected to be structured as both serials and term. Though the deal is given a low investment-grade rating, it should do as much as any offering to provide something of a gauge for the market this week, according to Alan Schankel, a managing director at Janney Capital Markets.
“Jersey’s big cigarette tax-refunding deal is pretty low quality, at BBB-plus,” he said. “That would be more of a bellwether to watch. But there are no real high-grade big issues next week that’ll set any kind of tone that I can see.”
Barclays Capital should price $675 million of Virginia Small Business Finance Authority senior-lien revenue bonds for the Elizabeth River Crossing OPCO LLC project. The bonds are rated Baa3 by Moody’s and an equivalent BBB-minus by Fitch. They are expected to come to market Thursday.
Barclays is also expected to price $575 million of South Carolina Public Service Authority Santee Cooper revenue obligations in taxable and tax-exempt series. The debt is rated Aa3 by Moody’s and AA-minus by S&P and Fitch.
The deal is broken down into a $312.8 million tax-exempt series and a $262.2 taxable series. The bonds are expected to surface Tuesday.
Wednesday should be a big day for the week’s competitive calendar. Its largest deals are scheduled to come up for auction then. They are led by the South Carolina Transportation Infrastructure Bank, which is expected to auction $270.7 million of revenue refunding bonds, which are rated A1 by Moody’s and A by Fitch. They should arrive structured as serials.
Michigan follows with an anticipated auction of $225 million of general obligation school loan and refunding bonds. The Delaware Transportation Authority is set to auction $203 million of transportation system senior revenue bonds.
