As the steamy summer doldrums settle in for the municipal market, a dip in supply is expected for the primary this week.
Market estimates place total potential volume for the week at $6.25 billion. That is down from total sales of $7.90 billion last week.
The Regents of the University of California lead all issuers with $900 million of tax-exempt and taxable debt expected to reach the negotiated market. Strong demand and too little paper make the expected volume manageable, industry pros say.
The primary volume is not overwhelming, said Douglas Gaylor, a portfolio manager at Principal Global Investors. There’s a lot of cash available and willingness to commit on investors’ parts.
“And with a market that has continued to run up for quite a while,” he said, “I wouldn’t expect that [the deals] would have a lot of trouble placing.”
There are $4.71 billion of municipal bond sales scheduled for negotiated sale this week, versus a revised $5.42 billion that were sold last week. Bonds scheduled for competitive sale next week total $1.54 billion, compared with $2.49 billion last week.
University of California Regents top the negotiated schedule; Barclays Capital is expected to price $900 million of limited project revenue bonds in tax-exempt and taxable series. The bonds are rated Aa2 by Moody’s Investors Service, AA-minus by Standard & Poor’s and AA by Fitch Ratings.
The first series should consist of $800 million of non-alternative minimum tax tax-exempt bonds. The second series is expected to bring $100 million of taxable paper.
Retail investors should have a crack at both series on Wednesday, with institutional investors allowed to participate one day later.
The recent announcement of San Bernardino’s intent to file for bankruptcy should not have an effect on investors’ appetite for California paper, Gaylor said. They see plunging muni yields and are willing to look at credits from other issuers in the state.
“There’s been a bunch of different credits out there that people, certainly retail investors, have in the past had some concern about,” Gaylor said. “Now, U.C. Regents is a double-A credit. This is a totally different entity, so it shouldn’t be affected by it.”
Barclays also is expected on Wednesday to price $381.1 million of Dallas and Fort Worth DFW International Airport joint revenue improvement bonds, subject to the AMT. The bonds are rated A1 by Moody’s and A-plus by Standard & Poor’s and Fitch.
Wells Fargo Securities should price $322 million of Los Angeles Department of Water and Power water system revenue bonds. Also, Siebert Brandford Shank & Co. is expected to price an additional $91.1 million series of the LADWP water system revenue bonds.
The bonds are rated Aa2 by Moody’s and AA by Standard & Poor’s and Fitch. The larger series should arrive Tuesday, structured as terms arriving in 2037, 2040, and 2043.
Morgan Stanley is expected to price $280.1 million of Mississippi general obligation refunding bonds broken down into tax-exempt and taxable series. They are expected to arrive Tuesday.
The first two series, $57.1 million of taxable GO refunding bonds and $43.7 million of tax-exempt GOs, are rated Aa2 by Moody’s, AA by Standard & Poor’s, and AA-plus by Fitch.
The next two series, $100.6 million of Libor index bonds for the Nissan North America Inc. project and $78.7 million of SIFMA index GO refunding bonds for capital improvement projects, are rated Aa2 by Moody’s and AA by Standard & Poor’s.
JPMorgan should price $261.3 million of Virginia Small Business Financing Authority senior-lien revenue bonds for the 95 Express Lanes LLC, project. The bonds are rated BBB-minus by S&P and Fitch. The bonds are expected to arrive Thursday, structured as two terms, maturing in 2034 and 2042.
The competitive market boasts just one issue of any real size. Pennsylvania is expected to auction $361.3 million of GO refunding bonds. The bonds are rated Aa2 by Moody’s, AA-plus by Fitch and AA by S&P. The debt, expected Tuesday, should arrive structured as serials, with maturities between 2013 and 2023.
Last week, muni bond yields continued to trade in a narrow range as the world outside of the market remained volatile, J.R. Rieger, a vice president of fixed-income indices at Standard & Poor’s Dow Jones Indices, wrote in a market research note. Historically low yields weren’t stopping investors hungry for paper.
“New-issue supply has been successfully absorbed by the market,” he wrote. “And in this low-yield environment, new deals with any incremental yield are still attracting investors.”