The few sizable deals in the primary market this week — anchored by a $1.5 billion Texas Transportation Commission highway revenue financing — are expected to draw keen attention amid a summer supply shortage, according to underwriters and traders.
“We need supply,” said Jay Alpert, executive vice president and manager of sales, trading, and underwriting at M.R. Beal & Co. in New York City. “It’s been kind of a flatline, and until we get a real calendar, I don’t see the wheels turning.”
The market might find some solace in the estimated $7.18 billion of new volume expected this week, according to data from Ipreo LLC and The Bond Buyer, given the $4.43 billion new issuance, revised down from the anticipated $5.26 billion, that actually priced last week, according to Thomson Reuters.
“Supply makes us more efficient and helps to achieve price discovery, but the calendar really hasn’t been that potent in the last three months,” Alpert said. “There has not been enough critical mass and the market is thin.”
The generic triple-A general obligation scale in 2040 closed at a 3.97% yield on Friday after closing at the same 3.97% each of the four previous days, according to Municipal Market Data.
The planned Texas highway deal, and an $800 million tax-exempt New York City GO sale, might help jump-start the primary activity this week when they share the spotlight Tuesday, players said.
Goldman, Sachs & Co. is expected to offer $115.5 million of tax-exempt revenue bonds from the Texas deal to retail investors Monday, and plans to price $1.38 billion of taxable Build America Bonds for institutions Tuesday.
The bonds have triple-A ratings from Moody’s Investors Service and Standard & Poor’s.
Barclays Capital and Loop Capital Markets, meanwhile, are the joint book-running senior managers of the New York City deal, which comes to market Tuesday after a two-day retail order period that ends Monday.
The city is rated Aa2 by Moody’s and AA by Standard & Poor’s and Fitch, withstable outlooks from all three agencies.
During the first day of the retail order period Friday, the final 2037 maturity from Series A was structured with a 4 1/4% coupon and 4.39% yield, while the final 2022 maturity in Series B had a 3 1/4% coupon priced to yield 3.31%.
Alpert said the New York City sale should grab retail and institutional attention.
“I think retail is present, but I don’t know if they have both feet in,” he added.
Meanwhile, trading was better in the secondary market last week as prices were “inching up,” and quality, high-grade names were fairing well.
“As those spreads narrow, they are narrowing on a lack of paper,” Alpert said.
Elsewhere in the primary, Columbus is gearing up to issue $430 million of various-purpose GO bonds in a five-pronged deal that includes tax-exempt and taxable debt and should give a boost to a fairly quiet market in the Midwest, according to one underwriter.
Stifel, Nicolaus & Co. will offer the tax-exempt bonds to retail investors and take indications of interest on the BABs on Wednesday, and price the deal on Thursday.
The deal has triple-A ratings from all three rating agencies. The largest portion consists of BABs — $266.4 million of unlimited-tax and $14 million of limited-tax bonds. Both BABseries will mature from 2016 to 2031.
In addition, $127.7 million of tax-exempt unlimited-tax GOs will mature from 2012 to 2028, while $16.29 million of tax-exempt limited-tax GOs will mature from 2012 to 2026. The deal also includes $5.73 million of limited-tax taxable bonds.
The Columbus sale should stand out as one of the largest to be priced in Ohio recently amid otherwise relatively small financings from local municipalities, such as school districts, according to a local underwriter.
“There hasn’t been a large amount of triple-A paper on its own, especially BAB issues, so I think this should get some good interest,” he said. He expects retail to focus on the tax-exempt bonds in the first 10 years.
Back in Texas, besides the mammoth state transportation deal, $300 million of Port of Houston unlimited-tax improvement and refunding bonds is also on tap. The bonds are expected to be priced on Wednesday by Bank of America Merrill Lynch.
The deal is rated triple-A by Moody’s and Standard & Poor’s. It is structured as $250 million of refunding and improvement bonds and $50 million of refunding debt.
In the competitive market, a three-pronged GO sale from Washington State totaling $717.5 million will command attention when it is offered on Wednesday.
The bonds are rated double-A plus by all three agencies. The debt is split into three series, the largest of which is $347.2 million of various-purpose GOs maturing from 2020 to 2035.
The deal also consists of $252.1 million of refunding GOs maturing from 2013 to 2022, as well as $118.2 million of taxable debt maturing from 2011 to 2020.
