Municipal bond volume estimates this week suggest issuers are emerging slowly from their seasonal hibernation.
Potential volume for this week is expected to total $2.74 billion, up from total sales of $11.7 million last week. Though no large deals are slated for the docket, relatively sizable issues from Virginia, Ohio and North Carolina lead the calendar.
The market is in fairly solid shape to absorb the volume; the dealer community on the Street is fairly light, industry watchers report. And the technicals on the buy-side are relatively strong, said Rick Taormina, a managing director of the tax aware fixed income group, which covers municipals, at JPMorgan Asset Management.
“We’ve had a couple of weeks of outflows, but they seem to be muted,” he said. “And once the fiscal cliff deal was done, we started to see cash flows come back into the marketplace. There seems to be people putting back to work some of the money that they took off the table. We’re seeing lots of maturities and interest income being reinvested.”
In fact, the January reinvestment period is typically one of the largest redemption periods of the year. This should lead to flows into bond funds turning positive this week, Domenic Vonella and Randy Smolik, analysts for Municipal Market Data, wrote in a research note.
Still, the fix Congress passed to keep the U.S. from tumbling over the fiscal cliff represented only a temporary salve to the uncertainties that shadowed much of the market last month. Congress must still find some middle ground on spending cuts.
“That haze will probably be over the marketplace until we have definite confirmation of what’s actually going to happen,” Taormina added. “There’s still talk of putting the deduction cap on, or limiting exemptions to a certain degree, which can have an impact on the marketplace.”
A closer look at the numbers shows that there are $1.72 billion of municipal bond sales scheduled for the negotiated side of the market this week, versus an estimated $4.0 million that were sold last week. Bonds scheduled for competitive sale this week total $1.02 billion, compared with $7.7 million last week.
The competitive side of the ledger should bring the week’s largest deals. Fairfax County, Va., leads the way as it expects to auction $300 million of general obligation public improvement bonds and GO public improvement refunding bonds. The bonds are rated triple-A by the major ratings agencies.
The bonds, expected Wednesday, should arrive structured as serials, with maturities in 2013 through 2032.
Ohio follows with an expected auction of $219.3 million of Ohio infrastructure improvement bonds in two series. The bonds, expected to arrive Tuesday, are rated Aa1 by Moody’s Investors Service and AA-plus by Fitch Ratings.
The first series, $150 million of infrastructure improvement GOs, should arrive structured as serials maturing in 2014 through 2033. The second series, $69.3 million of infrastructure improvement GO refunding bonds, should arrive as serials maturing in 2016 through 2025.
On the negotiated side, Wells Fargo Securities is expected to price $212.1 million of Mecklenburg County, N.C., GO refunding bonds. The bonds are rated triple-A by the major ratings agencies.
They are expected to arrive Thursday, structured as serials maturing in 2013 through 2027.
Piper Jaffray is expected to price $149 million of North Orange County Community College District, Calif., taxable GOs. The bonds, expected to arrive Thursday, are rated Aa1 by Moody’s and AA by Standard & Poor’s.
Bank of America Merrill Lynch follows as it expects to price $117.9 million of Oklahoma Municipal Power Authority power supply system revenue bonds. The bonds, expected to arrive Tuesday, are rated A by the major ratings agencies.