The rush to market ahead of potential tax law changes is set to begin as the municipal bond market awaits an above-average new issue calendar at a time of year when issuance usually slumps.
Ipreo estimates volume for the upcoming week at $11.73 billion, consisting of $10.03 billion of negotiated deals and $1.71 billion of competitive sales.
The week’s large supply slate was “driven largely by a push to beat the year-end deadline for use of tax-exemption imposed on several types of municipal issuance by Congressional tax reform proposals,” said Alan Schankel, managing director at Janney.
Schankel estimated volume for the week at about $13.7 billion and said even more deals might be added.
“It would not surprise me to see the calendar grow further as bankers and issuers squeeze more issues into the tight time-frame included in House and Senate bills,” he said. “Already reflecting the supply jump, tax free yields are rising even though Treasury and other taxable yields are steady.”
Natalie Cohen, managing director at Wells Fargo Securities, agreed, saying she had seen estimates of about $14 billion for the upcoming week.
“The calendar may get even heavier as issuers try to get ahead of tax reform before the end of the year, which may eliminate the option to advance refund issues,” she said. “Some transactions may get upsized as well.”
Private activity bonds made up a good section of the calendar, she said.
“Among smaller deals there seem to be a fair number of private activity offerings such as single and multi-family housing, student housing, hospitals and charter schools," she said. "Almost $10 billion are deals greater than $100 million.”
“The key issue is how well the market is able to absorb the volume without mangling pricing too much,” Cohen said. “And this build-up of volume certainly breaks away from the usual muni-treasury relationships, given how tax reform could change the municipal market after Jan. 1, 2018.”
On Wednesday, The Bond Buyer's 30-day visible supply calendar increased $6.34 billion to $16.92 billion.
And market sources tell The Bond Buyer that many issuers are flying under the radar, as they chose to go the short-term direct placement route until the situation on tax reform becomes clearer. This also gives issuers the option to flip the short-term securities over to long-term next year when and if the tax-reform proposals become law.
Topping the upcoming week’s list of deals is Houston’s $603.48 million of public improvement and refunding bonds.
Goldman Sachs is slated to price the transaction on Thursday. It’s rated Aa3 by Moody’s Investors Service and AA by Fitch Ratings.
The city is also selling $135 million of airport system special facilities revenue bonds. Citigroup is expected to price Houston’s offering on Tuesday. This deal is rated BB-minus by S&P.
Also on tap is the bond sale for the Brightline Passenger Rail Project. Morgan Stanley is set to price the Florida Development Finance Corp.’s $600 million of Series 2017 surface facility revenue bonds for the South segment on Thursday. The deal is unrated.
Wisconsin is coming to market with an advance refunding deal. RBC Capital Markets is expected to price the state’s $369.48 million of Series 2017 2 transportation revenue refunding bonds on Tuesday. The deal is rated Aa2 by Moody’s and AA-plus by S&P Global Ratings and Fitch and AAA by Kroll Bond Rating Agency.
In the competitive arena, Illinois is selling $750 million of general obligation bonds in two separate offerings on Wednesday. The deals consist of $655 million of Series of December 2017A GOs and $95 million of Series of December 2017B GOs. Both sales are rated Baa3 by Moody’s, BBB-minus by S&P and BBB by Fitch.
On Thursday, Washington state is selling $499.9 million of Series R-2018D various purpose GO refunding bonds.
Top shelf municipal bonds were weaker in late trading on Wednesday. The yield on the 10-year benchmark muni general obligation rose one to three basis points from 2.04% on Tuesday, while the 30-year GO yield increased one to three basis points from 2.73%, according to a late read of Municipal Market Data’s triple-A scale.
U.S. Treasuries were stronger on Wednesday. The yield on the two-year Treasury fell to 1.74% from 1.77% on Tuesday, the 10-year Treasury yield dipped to 2.33% from 2.36% and the yield on the 30-year Treasury decreased to 2.75% from 2.76%.
MBIS 10-year muni at 2.329%, 30-year at 2.843%
The MBIS municipal non-callable 5% GO benchmark scale was weaker in late trading.
The 10-year muni benchmark yield rose to 2.329% on Wednesday from the final read of 2.300% on Tuesday, according to Municipal Bond Information Services, a national consortium of municipal interdealer brokers. The MBIS 30-year benchmark muni yield inreased to 2.843% from 2.817%.
The AP-MBIS benchmark index is a yield curve built on market data aggregated from MBIS member firms and is updated hourly on the Bond Buyer Data Workstation.
MSRB: Previous session's activity
The Municipal Securities Rulemaking Board reported 40,573 trades on Tuesday on volume of $10.69 billion.
Data appearing in this article from Municipal Bond Information Services, including the MBIS municipal bond index, is available on The Bond Buyer Data Workstation. Click here for a brief tour of the Workstation, or contact Vanessa Kim at 212-803-8474 for more information.