New muni issuance is edging up.
The market is expecting $4.65 billion this week, up from a revised $4.27 billion last week and $4 billion in issuance the week before, according to Ipreo LLC and The Bond Buyer.
While this week’s calendar is one of the larger seen this year, it remains far from last year’s average of $8 billion a week.
There are $1.48 billion in competitive offerings scheduled, compared to a revised $1.29 billion last week. Also slated are $3.27 billion in negotiated deals, up from a revised $2.97 billion last week, according to The Bond Buyer and Thomson Reuters.
With 10-year tax-exempt yields at 2.64% at close on Friday, its lowest since Nov. 12, it appears to be a good time for issuers to come to market.
According to Municipal Market Data, the 30-year triple-A muni closed at 4.37%.
One analyst thinks that rising prices and lower yields should make investors cautious.
“Another week of strong price gains for tax-exempts should be making institutional players wary over putting too much capital at risk in the near term,” Matt Fabian, managing director at Municipal Market Advisors, wrote last week.
He added that product scarcity, particularly for highly rated new-money offerings, has kept buyers aggressive and muni yields have fallen nearly 40 basis points since the beginning of April. “There is thus growing pressure for a price correction,” he said.
And because of low issuance, buyers are eating up whatever issuance comes to market and issuers are having success locking in low rates.
Last Wednesday, Wisconsin issued $276 million of general obligation refunding bonds. Priced by Citi, the serial bonds had maturities ranging from two to 11 years, and were priced from 0.69% to 3.38%.
Right before the pricing, Standard & Poor’s and Fitch Ratings affirmed the state’s AA rating, while Moody’s Investors Service affirmed its equivalent Aa2 rating.
“The stable outlook reflects our expectation that Wisconsin’s trend of fiscal discipline, which has significantly reduced structural budget deficits in the past several years, will continue,” analyst John Kenward wrote in the Standard & Poor’s report.
As long as investor demand remains high, this week’s deals should be favorable for borrowers as well.
The biggest deal scheduled for this week consists of floating-rate bonds to be issued by the Panhandle-Plains Higher Education Authority Inc. in Texas. The agency is issuing $483.2 million of student revenue bonds that will be priced by Bank of America Merrill Lynch.
The authority will issue $167.2 million of bonds maturing in 2018, $170 million of bonds maturing in 2024, and $146 million of bonds maturing in 2037. All are benchmarked against the three-month London Interbank Offered Rate plus an additional interest rate that is yet to be determined.
Bond counsel is Squire, Sanders & Dempsey LLP and underwriters counsel is McCall, Parkhurst & Horton LLP.
Analysts at BMO Capital Markets say Libor floating-rate bonds may be a better choice for investors as they provide some protection against credit risk and interest rate risk, with possibly higher yields.
“The market is offering either low current yields with low interest-rate risk or better returns with limited protection against rising short-term rates,” Justin Hoogendoorn, managing director at BMO, wrote in a report. “If we can’t find perfect, what about 'optimal.’ ”
On the tax-exempt negotiated calendar, the Orlando-Orange County Expressway Authority in Florida is issuing $290 million of refunding revenue bonds. Maturities and pricing were not available in the preliminary official statement. Wells Fargo will price the Series 2011 bonds. Akerman Senterfitt, LLP is bond counsel. First Southwest Co. is financial adviser.
Also in the market this week is the Virginia Resources Authority, selling $80.2 million of 2011 Series A bonds on Wednesday. Around 70% of the bonds will be infrastructure revenue bonds rated Aaa by Moody’s and AAA by Standard & Poor’s.
The remainder of the bonds are moral obligation revenue bonds rated Aa2 by Moody’s and AA by Standard & Poor’s.