Muni Calendar Shows Slow Growth
Municipal bond issuance will stay light in the coming week as the calendar offers little to sate investors' growing hunger for tax-exempt paper.
Still, potential long-term muni bond volume for the week should rise to $4.89 billion, from $4.57 billion last week, industry watchers calculate.
And the anticipated bond deals, led by an RBC Capital Markets sale of $467.9 million of Minnesota state general fund appropriation bonds, represent anodyne issuers, which should be welcomed by most investors.
"I don't see any names there that are going to be stumbling blocks," said James Colby, portfolio manager and senior municipal strategist at Van Eck Global. "Whatever is on the calendar here in the next week: Virginia Commonwealth, Triborough, New York City water, Illinois tolls, Minnesota those are all recognizable, friendly, familiar names that normally do well; they will do well."
Munis have shown a hot hand in 2014. Since the start of the new year, triple-A tax-exempt yields have fallen significantly past early maturities, Municipal Market Data numbers show.
The muni 10-year has dropped 25 basis points through Thursday to 2.54%. The 30-year has plunged 39 basis points to 3.81%, while the two-year has slipped three basis points to 0.32%. By comparison, equivalent Treasury yields have fallen 21 basis points for the 10-year to 2.77%, 24 basis points for the 30-year to 3.68% and two basis points for the two-year to 0.36%.
"We've just come off a brutal seven- or eight-month period where redemptions and headlines have been really pounding the market," Colby said. "So, what we've experienced so far in January has been a breath of fresh air. Given the performance that we've had so far this week, that is an eminently manageable supply number."
The week's calendar breaks down into $3.02 billion of municipal bonds scheduled for negotiated sale this week, versus a revised $2.77 billion that were sold last week, according to Ipreo, The Bond Buyer and Thomson Reuters. Bonds scheduled for competitive sale this week should total $1.87 billion, compared with $1.79 billion last week.
It should easily be absorbed, said Dan Heckman, senior fixed income strategist, Private Client Reserve of U.S. Bank. "Buyers are really hungry to see this increase in supply," he said. "Any backup in rates will be met with a lot of buyer interest."
Leading off among negotiated deals, RBC Capital Markets on Monday expects to price $467.9 million of Minnesota state general fund appropriation taxable and tax-exempt bonds. They are rated AA by Standard & Poor's and Fitch Ratings.
The taxable portion should come structured as serials, maturing between 2015 and 2029, with terms in 2034 and 2043. The tax-exempt series is expected to have bonds maturing between 2015 and 2033, with terms of 2038 and 2043.
Goldman, Sachs & Co., expects to price $404 million of Illinois State Toll Highway Authority toll highway senior revenue bonds. They are rated Aa3 by Moody's Investors Service and AA-minus by Standard and Poor's and Fitch. The bonds should arrive Wednesday, structured as serials maturing between 2019 and 2022.
On the competitive side of the market, Tarrant Regional Water District, Texas, expects to auction two large deals. The first $205.5 million of Texas water transmission facilities contract revenue bonds for the City of Dallas Project, should arrive Tuesday. The bonds are rated Aa1 by Moody's and AAA by Standard & Poor's. They're expected to come structured as serials, maturing between 2015 and 2044.
The second, $323.7 million of Texas water revenue bonds, should arrive Thursday. They'll come structured as serials maturing roughly between 2014 and 2049.
As the market struggled through the second half of 2013, investors will like the high-grade deals that are scheduled this week, Heckman said. "We still have a potential problem with Puerto Rico," he said, "so buyers are naturally going to lean toward the higher-credit-quality issuers in this type of market."