Scheduled volume is projected to jump to $8.67 billion in the coming week, a level that may not be sustainable beyond the end of the month, municipal market participants said.
Expected volume for next week is more than $3 billion higher than the $5.6 billion that came in this week, according to data provided by Ipreo and The Bond Buyer.
"For investors in longer term there is still not a ton of supply beyond June," Anthony Valeri, Investment Strategist for LPL Financial, said in an interview.
This increase in supply is notable because volume has remained low throughout 2014. Supply as of May 31 totaled $115.15 billion, compared with $153.03 billion for the same period in 2013. John Dillon, chief muni strategist at Morgan Stanley, said volume will remain high the next few weeks, offering investors an opportunity to put money to work.
"Available reinvestment dollars are greatest during the next three months while supply is historically tightest during much of that same period," Dillon wrote in a report Friday. "It may be prudent to get ahead of it."
Volume for the coming week is largely driven up by the $1.7 billion of Los Angeles County Unified School District refunding general obligation bonds JPMorgan Securities is scheduled to bring to market.
Even with higher levels of issuance, investors believe the deals coming to market will be priced in favor of the sellers because buyers have been starved for bonds all year, and they received cash from coupon payments and bonds maturing on June 1, giving them more money to put to work.
"For those deals [coming in the next week], it's more helpful for the issuer," Valeri said. "They will be able to pull off a deal here for low borrowing costs — for investors, less of an opportunity."
The $5.6 billion in volume in the past week came in short of the $6.5 billion that had been forecast, as yields jumped in the first part of the week, making planned refunding deals less attractive to issuers. At least six large deals were reduced in size by a total of $807 million.
Bonds with intermediate and long maturities rose for the week with the 10-year jumping by 10 basis points to 2.27% and the 30-year by nine basis points to 3.52%, according to Municipal Market Advisors. The two-year held steady at 0.33%
Market participants see bonds being priced expensively in the weeks ahead because yields for benchmark bonds remain relatively low, and did not sell off after Friday's employment situation report showed non-farm payrolls rose 217,000 in May. Yields remained steady throughout the curve Friday according to both Municipal Market Data and MMA.
The spread between the triple-A 10-year benchmark general obligation bond and the benchmark 10-year Treasury note has compressed by 14.47 basis points to 86.97 from June 5, 2013, to June 4, 2014, according to MMD.
"We're due for a spread correction," a Midwest trader said. "The secondary is unwinnable because buyers are paying attention to new issues — buyers are holding out for higher yields."q
Treasuries weakened Friday, with the two-year note climbing three basis points to 0.41% and the 10-year benchmark inching up one basis point to 2.60%. The 30-year yield remaining at 3.44% from Thursday's market close.
