As last week’s largest deals showed, the municipal bond market is ready to absorb more issuance.
Nevertheless, the market should face another middling level of volume in the primary this holiday-shortened week. Long-term municipal bonds expected to be sold total $5.22 billion, according to The Bond Buyer and Ipreo, versus a revised $6.30 billion last week.
That breaks down to $4.15 billion of negotiated deals versus a revised $5.61 billion this week. Also slated are $1.08 billion in competitive offerings, compared with a revised $688 million last week.
Almost $2 billion of municipal credits from New York City, the Port of Seattle and the Regents of the University of California lead the coming week’s new issuance. The supply falls on the heels of a solid week in the muni market, when yields outperformed Treasuries and demand for product was robust.
Strong interest shown in debt from Puerto Rico and the Dormitory Authority of the State of New York indicate a resilient demand for the right type of product, industry pros said. The visible 30-day supply is beginning to represent more seasonal patterns of issuance, according to Jim Colby, senior municipal strategist and portfolio manager at Van Eck Global.
“Given what happened this past week with New York dorms and Puerto Rico aqueduct, you might conclude that the market is fairly well starved for issuance and new names,” he said. “I’d guess that would continue until such time as supply gets up to $11-to-$12 billion and starts to cause some more reasonable valuations and redistribution of resources.”
The Puerto Rico aqueduct deal was a bellwether for the market, said Chris Mier, a managing director in the analytical services division at Loop Capital Markets.
“Certainly, when you can get a megadeal like Puerto Rico aqueduct on, that’s a strong indication that there’s very good interest for the right type of product,” he said. “The market can handle more supply.”
Some heavy-hitting negotiated deals are expected. New York City takes the pole position. Morgan Stanley is expected to price $800 million of general obligation bonds for the city in two series.
The bonds are rated Aa2 by Moody’s Investors Service and AA by Standard & Poor’s and Fitch Ratings. They are expected to arrive Thursday and be structured as serials.
JPMorgan is expected to price $615 million of Port of Seattle intermediate-lien revenue refunding bonds. They should consist of $345.3 million of Series 2012A and $189.3 million of Series 2012B tax-exempt debt, as well as $80.4 million of Series 2012C taxable bonds.
They are rated Aa3 by Moody’s and A-plus by Standard & Poor’s and Fitch.
Goldman, Sachs & Co. is expected to price $500 million of University of California Regents taxable general revenue bonds, 2012 Series AD. The bonds are rated Aa1 by Moody’s, AA by Standard & Poor’s, and AA-plus by Fitch.
Wells Fargo Securities is expected to price $356 million of Virginia Public School Authority school financing bonds, 1997 resolution, refunding Series 2012 A. The bonds are rated Aa1 by Moody’s and AA-plus by Standard & Poor’s and Fitch.
The credits should be structured as serials, with maturities ranging from 2013 through 2030. They are expected to reach the market on Wednesday.
Bank of America Merrill Lynch is expected to price $300 million of San Francisco Airport Commission revenue bonds Tuesday. The bonds are rated A1 by Moody’s and A-plus by Fitch.
On the competitive side of the ledger, San Francisco is expected on Thursday to auction $331 million of various-purpose GOs. The bonds are rated Aa2 by Moody’s and AA-minus by Fitch. They are expected to be structured as serials.