The municipal market can expect $2.5 billion of new issuance in a holiday-shortened week, including two sizeable New York deals, but that’s not enough to keep up with last week’s revised $4.3 billion total, which was up from a revised $3.9 billion the week before, according to Ipreo LLC and The Bond Buyer.
Ipreo’s preliminary calculations called for $1.8 billion of issuance this week.
Low issuance persists even though the market is seeing tax-exempt yields near calendar-year lows. The 10-year triple-A yield closed at 2.65% on Friday, according to Municipal Market Data. The 30-year closed at 4.30%, while the two-year closed at 0.44%.
Last week the market absorbed $470 million of Massachusetts general obligation bonds. Yields ranged from 0.52% to 3.66% with maturities from 2012 to 2025. Retail investors took $180 million and the remainder was purchased by a variety of institutional investors.
“We do believe there is appetite and we’ve gotten well past the worst fears about credit issues,” said John Donaldson, director of fixed income at Haverford Investments. “That said, this has been the toughest cycle for state and local governments and so there is still a little apprehension.”
Donaldson sees a demand for owning individual bonds with intermediate maturities, as opposed to mutual funds and longer maturities.
“There is demand but it has to be priced correctly,” he said. “It needs to be clean, easy-to-understand, straightforward deals.”
One market source said he has seen strong demand over the past 10 weeks, driving yields down by 60 basis points.
“There are a lot of bonds maturing in June, July, and August and the supply of fixed rate is around $4 billion a week. So there is negative supply for the summer months,” the source said, adding that negative supply should improve investor appetite.
If demand continues to stay strong, larger offerings should fare well this week.
This week’s volume consists of an estimated $943.2 million of competitive offerings, compared with a revised $691.7 million last week.
The biggest deal coming to market is on the competitive calendar, with the Dormitory Authority of the State of New York issuing $684.3 million of state personal-income tax revenue bonds on Thursday. About $654 million will be tax-exempt Series 2011A PIT bonds. The remaining $30.4 million are taxable.
Slated for this week are $1.6 billion of negotiated deals, down significantly from a revised $3.6 billion last week, according to Ipreo.
On the negotiated calendar, the largest deal is $515 million of revenue bonds from the New York State Environmental Facilities Corp., which will be underwritten by Morgan Stanley and rated Aa1 by Moody’s Investors Service, and AA-plus byStandard & Poor’s and Fitch Ratings. The Series 2011B bonds have maturities ranging from 2012 to 2041.
“We expect the deal to go well,” a market source said. “It’s a high-quality asset and that is what retail and single-managed account investors are looking for.”
The source added that the bonds are evenly weighted, with $200 million in the first 15 years of the curve.
“Even though there is a decent supply of New York bonds coming to market in the next few months, there has not been a lot of supply recently,” the source said. “So we expect demand from investors looking for principal preservation.”
Another big negotiated deal is set to sell Thursday with $170 million of tax allocation bonds issued by California’s Inland Valley Development Agency. The debt will be underwritten by Barclays Capital and is rated A by Standard & Poor’s. There will be $50 million of Series 2011A bonds, $60 million of Series B bonds and $60 million of Series C bonds.
Thursday may also see a couple of large note issues, with California’s Riverside County and San Bernardino County issuing $250 million and $165 million of tax and revenue anticipation notes, respectively. The respective underwriters will be De La Rosa & Co. and Citi.