The municipal market will see the first substantial influx of new issue volume this week after a holiday lull that was marked by few new bonds.
According to Ipreo LLC and The Bond Buyer, issuers are expected to price an estimated $1.75 billion this week. Issuance could reach as high as $2.5 billion, according to other market observers, compared with last week’s absence of new issues.
“The market is probably a lot better than people give it credit for,” Jim Colby, a senior municipal strategist and portfolio manager for Market Vectors at Van Eck Global, said in an interview. “Munis have been severely depressed over the last several months. It doesn’t mean there’s going to be an immediate turnaround, but for discriminating buyers, there is going to find some opportunity with some of the names that are coming into the marketplace.”
On the negotiated calendar is a $240 million University of Texas deal led by JPMorgan and $150 million of Massachusetts Development Finance Agency revenue bonds led by Barclays. The Texas bonds are rated Aaa by Moody’s Investors Service, and AAA by both Standard & Poor’s and Fitch Ratings. The Massachusetts bonds are rated A2 by Moody’s.
“There’s some bigger stuff than what we’ve been seeing so hopefully it will get a little busier,” a trader in New York said in an interview. “There are not a whole lot of customers in right now, so it’s a tough read at this point, with things being pretty quiet.”
January is a typically quiet month for new volume, but scheduled coupon payments from bonds issued in June means many bond buyers will have money to invest this month, Colby said. Reallocation of money from tax-loss selling of bonds could also provide the market with reinvestment money, market participants said.
“Coupon payments, maturities of Jan. 1, 2014, and bond calls put together a pretty sizeable pool of cash that probably does get reinvested in the muni market,” Colby said. “Muni coupons pay every six months and there’s typically a lot of issuance in June and July.”
Weakening of about 100 basis points in bond yields over the past several months has presented a good entry point for investors, Colby said. Sustained outflows from municipal bond mutual funds could keep investors at bay though, Colby and the New York-based trader noted.
“Even if the primary calendar had been significantly larger this past week I’m not sure it would have received a great deal of beneficial attention given all the outflows that we’ve had,” Colby said. “A muted calendar the next few weeks could be a good thing.”
Outflows are likely to continue as market sentiment remains unchanged, Janney Capital Markets said in its daily report on Thursday.
“Supply does not appear to be a significant factor, with no new issue [the week ended Jan. 3], and a meager $2.5 billion listed for [the week beginning Jan. 6],” Janney said in the report.
