The arrival of a handful of new issues this week will help revive the recently lifeless primary market after it all but shut down for nearly the last month.
New issue volume plunged as many new deals were delayed, postponed, or canceled as the nation's banking and financial crisis unfolded.
The financial markets remain shaky and municipals continued to give ground, which made them appear attractive compared to the taxable market on Friday when generic triple-A general obligation bonds due in 30 years ended at a 5.69% yield, according to Municipal Market Data.
The price dislocation is making it a difficult environment to price new issues, according to Jay Alpert, executive vice president of trading and underwriting at M.R. Beal & Co. in New York City.
"The best indicators are being eclipsed. It's very hard to nail down the price and buyers" of new issues, he said, and "buying strategies are being challenged."
From a relative basis, long municipals were yielding 131.3% of their taxable counterparts last Friday, which is keeping retail enticed. However, overall "there are more sellers than buyers right now," a New York short-term trader said on Friday.
He was among those who had doubts about the largest deal of the week: a planned $4 billion California revenue anticipation note deal tentatively set for pricing on Thursday by Goldman, Sachs & Co. and Banc of America Securities.
The offering, which is slated to be priced for retail investors today and tomorrow, is expected to enter the market along with an estimated $4.156 billion in total long-term volume, compared with a revised $2.182 billion last week, according to Thomson Reuters.
At least one market participant said the colossal deal may be too soon and too substantial for the municipal market to absorb so soon after central banks around the world lowered key interest rates last week and Congress passed the historic $700 billion rescue plan the prior week.
"There's no way to sugar-coat it ... I think it's going to be a pretty heavy lift," especially ahead of the Oct. 15 coupon payment date tomorrow, the New York trader said. Despite price improvements in the short-term that have signaled some strength, he noted that tax-free money market funds only saw total inflows of $4.90 billion total for the week ending Oct. 6.
Massachusetts last week tested the market with its $750 million revenue anticipation note sale, pricing the notes - which mature May 29 - to yield 2.20%. California, meanwhile, needs to sell its Ran deal to meet cash-flow requirements and avoid having a negative cash balance by Oct. 29.
Meanwhile, the attractive absolute yield levels on the long-term deals should draw retail investors - if the deals come to market as planned. "The calendar is there but you just don't know what is going to make it," a New York underwriter said.
"A lot of supply is in the wings, and that will eventually have an effect on the price, so we may be suffering some dislocation for a while," Alpert said.
The long-term activity this week will be dominated by a handful of Northeast sales, led by a $500 million revenue sale from New York's Metropolitan Transportation Authority, followed by a New York City general obligation sale that is expected to include $300 million of tax-exempt GO bonds and $45 million of taxable GO bonds structured to mature from 2010 to 2029. Morgan Stanley is expected to price the deal on Thursday.
"The MTA and N.Y.C. GO deals should do well," the New York trader said. "With the budget situation in New York and the loss of revenues from financial companies, they will come cheap and with full coupons that retail wants."
A $424.1 million Connecticut special tax obligation refunding deal is earmarked to be priced tomorrow by Goldman with a structure that includes bonds maturing from 2010 to 2022. The Massachusetts Bay Transportation Authority is planning to sell $350 million of assessment bonds on Thursday following a retail order period tomorrow, while the Pennsylvania Turnpike Commission is also hoping to price $300 million of subordinated revenue debt in a deal structured to mature from 2009 to 2028 with term bonds in 2033 and 2038 in order to raise quarterly payments for payments it makes to the state's Department of Transportation.
