While the municipal bond market is looking at almost $12 billion in new supply this week, total volume for this year is piling up and slowing closing in on 2013 levels.
Issuance Rising
It was recently reported long-term municipal bond issuance increased 15.3% in November to $28.330 billion, according to Thomson Reuters data, bringing total issuance to approximately $294 billion for 2014.
"Based on historical averages, this $294 billion equates to an annual issuance pace of $320 billion," Chris Mauro, head of municipals strategy for RBC Capital Markets, wrote in the firm's latest research report. "However, given the market's strong start in December, we believe that total issuance for the year may breach the $320 billion level and potentially hit $325 billion."
There is almost $12 billion of new municipal bond supply coming to market in this second week of December, according to Ipreo and The Bond Buyer. This comes after about $13 billion of new supply hit the market in the first week of the month, according to Thomson Reuters.
So it looks likely that for the first two weeks in December, supply could hit $25 billion - and still leaving one full trading week in the year.
"As a result, total issuance in the neighborhood of $325 billion looks entirely possible," Mauro says. "This would be surprisingly close to the $334 billion annual volume posted in 2013 and significantly higher than our December 2013 estimate of $285 billion for 2014."
This rise in issuance was a nice surprise to many muni market participants.
"As we entered the third quarter, we were 15% to 20% down on the year in volume," said Dan Heckman, senior fixed income strategist at U.S. Bank Wealth Management. "But we had a good pickup in the third quarter and in the fourth quarter this has accelerated even more."
Heckman said, excluding the Thanksgiving holiday week, there has been a marked rise in issuance over the past three to four weeks.
"We are seeing municipalities bringing new debt to market because it is an attractive time to do it, while rates are low and spreads are tighter," he said.
Given the lateness of the hour, the market has been very receptive to all the new deals being done.
"Despite pickup in issuance, the market has had a nice hungry appetite for it, with some deals being oversubscribed and others being repriced to lower levels," he said.
He added he expects to see volume increase, excluding the two holiday weeks of 2014.
"I expect issuance to continue rising into the start of the new year," he said, adding, "the only question is whether the fourth quarter has been drawing in issues that might have been priced in the first quarter of 2015."
Primary Market
Morgan Stanley is set to price the week's biggest deal - the Los Angeles Community College District, Calif.'s $1.3 billion general obligation bonds, The issue is comprised of new money and refunding bonds and rated Aa1 by Moody's Investors Service and AA-plus by Standard & Poor's.
Elsewhere in the Golden State, the Bay Area Toll Authority will bring $731 million of revenue bonds to market. Bank of America-Merrill Lynch & Co. will price $431 million of San Francisco Bay Area toll revenue senior lien bonds structured as Series D and Series 3 term-rate bonds, and Series G and H index-rate bonds. The bonds are rated Aa3 by Moody's, AA by S&P, and AA-minus by Fitch Ratings. Meanwhile, the $300 million subordinate toll bridge revenue bonds in Series S6 will be priced by Citigroup Global Markets. It is structured as a 2054 bullet maturity and rated A1 by Moody's and A-plus by S&P.
Additionally, Bank of America Merrill Lynch is scheduled to price the California Statewide Communities Development Authority's $650 million tax-exempt and taxable revenue bonds on behalf of the Loma Linda University Medical Center. The deal is rated BBB by Standard & Poor's and BBB-minus by Fitch.
Secondary Market
High-grade municipal bond yields were unchanged to slightly lower on Monday. The yield on the benchmark 10-year general obligation was unchanged from 2.06% at Friday's close while the yield on 30-year GOs was down as much as one basis point from 3.00%, according to a preliminary read of MMD's triple-A scale.
On Monday, Treasury yields were mixed with the two-year note yield unchanged at 0.64% from Friday. The 10-year yield dropped to 2.29% from 2.31% while the 30-year decreased to 2.95% from 2.97% on Friday.
On Friday, the 10-year muni-to-Treasury ratio closed at 90.6% versus 91.6% on Thursday; the 30-year muni to Treasury ratio closed at 101.2%, compared with 101.0% on Thursday.
MSRB: Previous Session's Activity
The Municipal Securities Rulemaking Board reported 34,534 trades on Friday for volume of $8.745 billion. Most active on Friday, based on the number of trades, was the Connecticut refunding bonds, Series H, 5s of 2025, which traded 115 times with an average price of 123.776 and an average yield of 2.5%. The second most active issue was the Long Island Power Authority electric system revenue bonds, Series A, 4s of 2039, which traded 114 times with an average price of 101.06 and an average yield of 3.869%.
