Six of the eight largest municipal bond sales that came to market this week were increased from their originally scheduled amount.
That's because buyers have more capital to invest since they just received cash from coupon payments and bonds maturing on June 1, the start of reinvestment period, market participants said.
"Investors have a lot of cash to put to work; June 1 and June 15 are big coupon-payment dates," a trader in Texas said.
The second largest deal of the week, New York City's general obligation sale, was increased to $1.02 billion from an expected $850 million due to heavy demand for the bonds, a spokesman for the city said.
Houston's $548 million combined utility system first-lien revenue and refunding bonds' total was raised from a scheduled $527 million. Both Texas and utility bonds are attractive, so buyers' desire was ramped up for this debt, investors said.
Buyers also said that there was higher demand for this week's issuances because there were actually a sizable amount of bonds coming to market, after sparse issuance all year. Janney Capital Markets wrote in a report released on Friday that issuance will decline next week.
"The pace of new issuance will recede next week, with $5.5 billion scheduled so far compared to the $9.8 billion total of the current week," Janney wrote.
The Bond Buyer and Ipreo project volume next week will slip to $6.2 billion. Volume in the past week totaled $9.29 billion, according the Thomson Reuters, up from the forecast of $8.67 billion. Volume for the year as of May 31 totaled $115.15 billion compared to $153 billion for the same period in 2013, according to The Bond Buyer and Ipreo data.
The two deals out of the largest eight that came to market that were not upsized totals' were decreased. The $1.62 billion of Los Angeles USD GO refunding bonds that were priced on Thursday volume was lowered from an originally scheduled $1.7 billion. The Louisville Regional Airport Authority's $248.5 million airport system revenue refunding bonds was decreased from $254.2 million.
Investors attributed these downsizings to the general low-yield environment, saying that many buyers are holding out waiting for yields to rise before they reinvest.
Municipal bonds outperformed Treasuries on Friday.
Yields for short and intermediate bonds held steady, and declined slightly on the long end with yields for bonds maturing in 25 to 30 years dropping one basis point, according to Municipal Market Data's triple-A scale. The 10-year and the two-year Treasuries' yields rose.
"Munis are taking a breath, and no big deals are coming today," a New York trader said. "Treasuries are what are really driving muni yields right now."
The two-year note's yield rose by three basis points to 0.45% from Thursday, and the 10-year yield increased by two basis point to 2.6%. Yields on the 30-year dropped one basis point to 3.4%.
"Really, Treasuries are the driver of long-term transactions," a trader in Chicago said. Municipal bonds have been following Treasuries most of the week, selling off when they weakened on Monday and Tuesday, and strengthening when Treasury yields fell on Thursday.
Many market participants are saying that municipal bonds' and Treasuries' absolute yield levels are unsustainably low, and that both will need to sell off sometime soon.
