The municipal market this week is back to the low supply figures that characterized the market in January and February, but some say the size of the bond issue isn't exactly what counts.
While issuance is projected to reach just $3.29 billion this week, Larry Jones, a portfolio manager at McDonnell Investment Management, said the variety of issuers with deals around at least $100 million in size will be appealing to some buyers.
"It's not the total size that's important, it's the amount of deals, and there are a decent number between $100 million and $400 million this week," Larry Jones, a portfolio manager at McDonnell Investment Management, said in an interview Friday.
There are six negotiated bond sales greater than $90 million this week, and three similarly sized deals in the competitive market, according to data from Thomson Reuters. The sales include Wisconsin transportation, Nevada airport and San Bernardino bonds.
"Besides the top supply level another important factor is the number of deals that are available," Jones said. "Investors need some name diversification, just because there is a big $1 billion-plus deal doesn't mean it'll suffice all their needs."
The municipal market opened slowly on Monday, coming off the heels of a revised $11.38 billion of total issuance last week that included the heavily sought-after Puerto Rico and California general obligation issuances.
Strong demand for the Puerto Rico and California GO bonds meant both issuers upsized the sales. Puerto Rico issued a revised $3.5 billion, up from the initially expected $3 billion, and California offered $1.8 billion instead of $1.6 billion.
The largest negotiated issuance scheduled for this week is the $393.61 million state of Wisconsin transportation revenue bonds and revenue refunding bonds set to come to market on Thursday.
"It is hard to tell how the market is doing after a week of large issuance," a municipal bond trader based in New York said in an interview. "It's too early. It's a quiet start to the week, there are not a lot of prints."
The commonwealth of Massachusetts will begin to issue obligation bonds Monday as part of the state's effort to launch the MassDirect note program. The program will offer GO bonds to retail investors during the last two weeks of every month.
The lack of issuance this week may balance an historical tendency toward low demand in the month of March, BlackRock said in a research report Monday.
"March traditionally brings some weakness, as demand tends to wane at tax time," BlackRock's municipal research team said in the report. "Against this backdrop, we believe a neutral duration posture is warranted, as is a continued focus on income over total return given the magnitude of the recent gains."
Yields opened steady on Monday, according to Municipal Market Data. Treasuries jumped Monday morning, as the 30-year yield climbed two basis points to 3.62% and the 10-year benchmark jumped three basis points to 2.68%. Two-year note yields were unchanged at 3.36%.
The yield on Puerto Rico GOs with an 8% coupon maturing in 2035 continued rising Monday morning, touching 8.65%, up 12 basis points from Friday. California GOs with a 5% coupon in 2025 climbed to 3.12% from 3.06% on Friday.
with reporting by Oliver Renick
