Another subpar week of primary supply probably won’t generate much excitement from the municipal bond market. But it should continue to do its part to hold muni yields close to their current rock-bottom levels across the curve and to keep muni ratios to Treasuries relatively rich.
The latest industry estimates have muni bonds expected to be sold next week totaling $3.91 billion versus a revised $4.38 billion this past week. That breaks down into $893.1 million in competitive offerings that are scheduled for sale, compared with a revised $1.44 billion last week. In addition, $3.02 billion in negotiated deals are slated for sale, versus a revised $2.94 billion last week.
The muni market last week swung back and forth from rallies to sell-offs while pushing through record low yields along much of the curve. It closed five basis points lower at the front end and mostly flat further out.
Even with the modest gains on the week, munis outperformed Treasuries, whose yields rose across the curve. Ratios to Treasuries hovered in richer territory with dramatic movement occurring at the front end, according to Municipal Market Data numbers. Over the week, the two-year fell to 120% from 167%.
Retail investors should find market technicals appealing, according to Dominic Nori, chief executive officer of Private Wealth Management, an independent wealth management firm based in Florida.
“Municipals are still attractive and still in demand for retail buyers, because they have no other alternatives for yield,” he said.
Issuers have been slow to ramp up to the expected levels of volume for the year. They’ve shown they can be fiscally conservative by aiming to spend less money, but the volume will come, Nori said.
“Municipalities want to do more refinancing to lower their debt burden more than they want to issue more new debt,” he said. “You’re seeing them now trying to get their refinancing opportunities in place. … And that’s going to take a little time to get going.”
Negotiated deals dominate the week’s calendar. Barclays Capital leads the way with an expected pricing of $257.9 million of University of Washington general revenue and refunding bonds made up of Series 2012A tax-exempts and 2012B taxables.
The bonds, which are expected Wednesday, are rated Aaa by Moody’s Investors Service and AA-plus by Standard & Poor’s.
Goldman, Sachs & Co., follows with the expected pricing of $253.6 million of Shelby County, Tenn., general obligation refunding bonds, 2012 Series A and B. The bonds, which are scheduled for sale on Tuesday, are rated Aa1 by Moody’s and AA-plus by S&P and Fitch Ratings.
Citi is expected to price $245.6 million of San Antonio Water System revenue refunding bonds, Series 2012. The bonds, which are expected to arrive on Tuesday, are rated Aa1 by Moody’s, AA by Standard & Poor’s and AA-plus by Fitch.
Morgan Stanley is expected to price $240.6 million of Cleveland Airport System revenue bonds, Series 2012A, not subject to the AMT. The bonds are rated Baa by Moody’s and A-minus by Standard & Poor’s and Fitch. They are expected to arrive on Wednesday. The bonds will be structured as serials, from 2025 to 2031.
Bank of America Merrill Lynch expects to price $161.5 million of bonds for Texas’ Tarrant Regional Water District. The bonds, which should arrive Tuesday, are rated AAA by Standard & Poor’s and AA-plus by Fitch.
The only large deal scheduled for the competitive market this week also comes from the Tarrant Regional Water District. It is expected on Wednesday to auction $134.6 million of Water Transmission Facilities contract revenue bonds for the Dallas Project, Series 2012.
The bonds are rated AAA by S&P and Aa1 by Moody’s.
Investors are still sitting on piles of cash, and much of the Street anticipates this will be deployed once supply and yields rise, MMD analyst Domenic Vonella wrote in a research post.
“But one should not expect customers to try and catch a falling knife, which could make for more mixed action over the next week,” he wrote, “especially if Treasuries continue to unwind and muni-Treasury ratios drop.”
