Anticipated municipal market issuance has leveled off for a third consecutive week.
Potential volume for the week is expected to total $7.45 billion, down a couple of ticks from $7.47 billion last week. Large negotiated deals from issuers in Pennsylvania and New York lead a top-heavy calendar.
Market watchers say appetite for tax-exempt paper persists, as investors remain anxious to put cash to work in what continues to be a low-rate environment. The hunt for yield will continue to play out in the thick of the unbalanced supply-demand cycle.
Very large funds are reportedly sitting on a lot of cash and thinking of leveraging their assets under management, said Tom Metzold, co-director of municipal investments at Eaton Vance. Thus, the new issuance should be absorbed easily, he added.
“There’s so much money sitting in funds, and there just have not been enough bonds,” Metzold said. “You’re probably going to see some blowouts, especially in some of the specialty states and certainly with the amount of money sitting in high yield. Anything that’s got any modicum of spread is probably going to do quite well.”
Digging into the numbers, there are $6.35 billion of muni bonds scheduled for negotiated sale this week, versus a revised $6.14 billion that were sold last week. Bonds slated for competitive sale this week total $1.10 billion, compared with $1.33 billion last week.
A $2.56 billion deal from the Pennsylvania Economic Development Finance Authority, which stands as a new credit to the market, leads negotiated deals this week. The bonds are rated Aaa by Moody’s Investors Service and AA-plus by Standard & Poor’s and Fitch Ratings. The issue should arrive Tuesday, following a retail order period the day before, broken into two series. In the first, Citi is expected to price $1.40 billion of non-callable Pennsylvania EDF unemployment compensation revenue bonds. The bonds should arrive structured as serials, maturing from 2013 through 2019.
For the second, Bank of America Merrill Lynch is expected to price $1.16 billion of unemployment compensation bonds. The bonds should arrive structured as serials, maturing from 2020 through 2023. The Pennsylvania EDFA is expected to issue another $300 million on Oct. 17.
As it’s a new form of credit, and thus one not owned broadly, if at all, it should generate interest from investors looking for diversification in the market, said James Ahn, an executive director at JPMorgan Asset Management.
But the nature of the credit also adds appeal. The security features are such that the debt service will be payable from what Ahn called unemployment compensation assessments that are paid by employers within the state.
Issuers in Michigan, Illinois, Idaho and some other states have come to market with this type of issuance, Ahn said. They were well-received, he added.
“The structures vary from state to state, so the ratings for them are different,” Ahn said. “But generally, the security features have been quite strong, and that seems to be the case with Pennsylvania.”
JPMorgan should price $825 million of New York City general obligation bonds in three series. The bonds are rated Aa2 by Moody’s and AA by Standard & Poor’s and Fitch.
Bonds for the three series, $525 million, $260 million and $40 million, should arrive Tuesday after a two-day retail order period. Each is expected to come structured as serials, maturing from 2013 through 2032.
On the competitive side, the University of Alabama Board of Trustees on Tuesday will auction almost $290 million of general revenue bonds in tax-exempt and taxable series. The bonds are rated Aa2 by Moody’s and AA-minus by S&P. The tax-exempt series, $268.6 million, is expected to arrive structured as serials, maturing from 2014 through 2042.