The week's two top utility deals, scheduled for retail order periods Wednesday, will be in high demand, investors say.
Bank of America Merrill Lynch will price the $561.24 million Massachusetts Water Pollution Abatement Trust state revolving fund refunding bonds, and Barclays Capital the $322 million Department of Water and Power of the city of Los Angeles power system revenue bonds.
"Water and sewer are outperforming, so there will come aggressively," a trader in Chicago said.
The Massachusetts Water Pollution Abatement Trust deal earned a triple-A from Moody's Investors Service, Standard & Poor's and Fitch Ratings. The Los Angeles Department of Water and Power bonds received a Aa3 from Moody's and a AA-minus from S&P and Fitch.
Barclays Capital wrote in a report released on Friday that water and sewer bonds are attractive because they are trading wider than the muni index and tend to have high ratings.
The report also noted there are not many water and sewer bonds expected in the near future. Barclays wrote the latest 30-day visible supply outlook showed future water and sewer issuance off 20%, the largest decline by sector.
Along with the wider credit spreads, high ratings, and the decline in water and sewer issuance in the near future, Barclays noted water and sewer bonds are desirable because they are essential services.
"I think that [the two utility deals] are in the group considered essential revenue, and people like to focus on what they think are essential revenue bonds," a trader in New Jersey said.
The trader in New Jersey said one of the reasons the utility deals will be in demand is because even if they are priced aggressively, their yields will likely still be higher than state or local GOs.
"I think the two large utility deals will get a fair amount of demand," a trader in New York said. "When buyers purchase the bonds they are buying national paper, but don't need to pay the high price for a specialty state security."
D.A. Davidson will price $150 million of Edmonds School District #15, Wash., GOs Wednesday. The deal is rated Aa1 by Moody's Investors Service and AA-plus by Standard & Poor's.
