As far as primary issuance in the municipal market goes, this week’s volume should weigh in at levels roughly where January has been so far: light.
The Bond Buyer calculated that municipal bonds expected to be sold this week will total $3.45 billion versus a revised $4.19 billion last week. Scheduled for auction are $1.03 billion in competitive offerings, compared with a revised $2.16 billion last week. Also slated for sale are $2.42 billion of negotiated deals, versus a revised $2.03 billion last week.
The scant supply hits a market hungry for new product. There is a degree of surprise among some that more issuers haven’t reacted to this.
“Primary issuance is starting off slower than I anticipated,” said Alan Schankel at Janney Capital Markets. “I think it’ll pick up as the year goes on. I can’t believe issuers won’t jump in as quickly as they can to lock in low yields there.”
In fact, muni bond pros have said that they don’t expect primary issuance to really get rolling until sometime in February. Volume for the holiday-shortened week will do nothing to change that forecast.
By comparison, the average weekly issuance in 2011 was $4.8 billion, Municipal Market Data analyst Randy Smolik wrote in a research post. A wave of issuance in June, October and November boosted the overall total. “Some dealers feel primary issuance may not surge until February,” Smolik noted, “but others noted the pace of their scheduling was showing an increase for the week of Jan. 23.”
Reinvestment money is playing a large role in the demand, Schankel said. The figure for reinvestment money in January approaches $20 billion and February should also be a strong reinvestment month.
“And there are probably still reinvestment proceeds left over from December that haven’t been deployed,” Schankel said. “So, there’s a lot of demand. And fund flows are continuing to be positive, with some strength. We need to see supply pick up to get some balance.”
The competitive market should claim the week’s largest new bond deal. The Port Authority of New York and New Jersey is expected to auction $400 million of consolidated bonds, 171st series.
The bonds should reach the market on Wednesday. They are rated AA-minus by Standard & Poor’s and are expected to have a serials structure.
Fairfax County, Va., is expected to auction $221 million of Series 2012A public improvement bonds on Wednesday. They will carry triple-A ratings and are expected to be structured as serials.
Morgan Stanley should lead the negotiated pack when it prices $236 million of South Carolina Public Service Authority revenue obligation bonds, tax-exempt Series 2012A and B, and taxable series 2012C. The bonds are rated Aa3 by Moody’s Investors Service and AA-minus by S&P and Fitch Ratings. The bonds, all with serial maturities, are expected to reach the market on Thursday.
Bank of America Merrill Lynch follows closely behind as it is expected to price $234 million of Wisconsin Health and Educational Facilities Authority revenue bonds, Series 2012A, for Aurora Health Care. The bonds are rated A3 by Moody’s and A by Fitch and are expected to come to market on Friday.
JPMorgan is expected to price $175 million of California Health Facilities Financing Authority revenue bonds for Scripps Health. The bonds are rated double-A minus by all three rating agencies.
Goldman, Sachs & Co., is expected to price $174 million of Alaska general obligation refunding bonds series 2012A on Thursday. The bonds are rated triple-A by Moody’s and S&P and AA-plus by Fitch.
The deal will be all serials, from 2013 to 2023, according to Angela Rodell, the state’s deputy commissioner of revenue. The bulk of the debt will be front-loaded, she added, so the state can back-load the savings.