Municipal bond investors can expect another week of relatively solid issuance.
Potential volume is expected to total $7.70 billion, up from sales of $7.36 billion last week. The Port Authority of New York and New Jersey should lead all issuers this week with an anticipated $2 billion of taxable consolidated bonds.
A healthy shower of supply poured onto the brown, parched terrain of the muni-market investor base last week, following three consecutive weeks of scant supply. Buyers lapped it up with bumps to prices and oversubscribed deals.
In addition to the pent-up demand, the market also saw solid inflows to muni bond funds and strong tailwinds from Treasuries, said John Dillon, chief municipal bond strategist at Morgan Stanley Smith Barney. Still, the week’s volume offers only a limited view, he added.
“This is only the first inning,” Dillon said. “What will really tell the tale will be the next few weeks — if you have fairly robust supply in that $7 billion range, the market may feel a little bit more pressure.”
There are $6.37 billion of municipal bonds scheduled for negotiated sale this week, equal to a revised $6.37 billion that were sold last week.
Bonds scheduled for competitive sale next week total $1.33 billion, up from $989 million this week.
On the negotiated side of the market, the Port Authority of N.Y. and N.J. holds the pole position. RBC Capital Markets is expected to price $2 billion of Port Authority taxable consolidated bonds.
Several months ago, they were rated Aa2 by Moody’s Investors Service and AA-minus by Standard & Poor’s and Fitch Rating; updated ratings were not available by press time. The 50-year bonds, expected on Friday, are all set to mature in 2062.
RBC should also price the largest tax-exempt deal: $1.55 billion of California various-purpose general obligation and GO refunding bonds in two series. The bonds are rated A1 by Moody’s and A-minus by Standard & Poor’s and Fitch.
The first series, $1 billion of new money for various types of public works projects, should arrive structured as both serials, maturing from 2013 through 2022, and terms in 2036, 2037 and 2042. The second series, $550.3 million to refund existing debt, is expected to arrive structured as serials, maturing from 2013 through 2022 and from 2025 through 2030. They are expected to price Tuesday, following two retail-order periods.
The deal should find a willing number of investors who see a Golden State on the mend and moving in the right direction from a fiscal perspective, said Duane McAllister, a co-manager of the BMO intermediate tax free fund at BMO Global Asset Management U.S. Spreads for California-issued debt are tighter than they were several months ago, he added, but its GOs remain a very high priority payment.
“There are a few referendums on the ballot that would raise income tax rates in the state,” McAllister said. “That would only make a Cal GO more appealing to the highest-income investors out there.”
Bonds and notes from Massachusetts are expected to pace the competitive side of the ledger. The commonwealth should auction $1.2 billion of GO revenue anticipation notes in two series. They are rated SP-1-plus by Standard & Poor’s. The Rans, scheduled to arrive Thursday, will mature in April and May of 2013.
Massachusetts should also auction $400 million of GOs on Tuesday. The bonds are rated AA-plus by Standard & Poor’s and Fitch. They are structured as serials, maturing from 2027 through 2042.