The municipal market can expect $4.12 billion of new issuance this week, about half of last week’s $8.32 billion.
The negotiated market will take the biggest hit this week, with only $3 billion coming to market, down from a revised $5.45 billion last week. About $1.13 billion in competitive deals will come to market, down from last week’s revised $2.87 billion. Last week’s $8.32 billion was the biggest weekly slate so far in 2011.
Investors seem cautious about how the market will react to low issuance after last week’s fairly well-received influx of offerings. “There are not a lot of deals on the competitive calendar, so this week doesn’t feel big,” said Hardy Manges, head of the secondary municipal trading desk at Mitsubishi UFJ Securities.
“On the competitive side last week, the big state general obligation bonds, like Washington and Wisconsin, were pretty well-received,” he said. “But the market didn’t see the follow-through after the sales in secondary trading. And whether good bids can follow through in the secondary market with Treasuries fading in the last three days remains to be seen.”
Manges added that in general, municipals have performed well in an environment of rising Treasury yields and the muni cash market has performed well because muni-to-Treasury ratios are high.
This week’s biggest deal comes in the competitive market on Wednesday, when triple-A rated Maryland will issue over $600 million of GO bonds in four separate pricings. Almost $16 million will be issued first, followed by a $6.5 million piece, a $390 million piece, and a $206 million piece. Maryland is one of five triple-A rated states that Moody’s Investors Service last week put on review for a possible downgrade due to U.S. sovereign risk vulnerability.
Also on Wednesday, the San Diego County Water Authority will issue $175 million of refunding bonds.
In the negotiated market, Tuesday will see the biggest deals of the week. The Maine Health and Higher Education Facilities Authority will issue $290 million of Series 2011 revenue bonds for the Maine General Medical Center. The bonds will price Wednesday and have maturities ranging from 2012 to 2041. Underwritten by Bank of America Merrill Lynch, the bonds are rated Baa3 by Moody’s and BBB-minus by Fitch Ratings.
Columbus, Ohio, will issue $289.5 million of triple-A rated various purpose GO bonds, with $198.45 million of unlimited-tax Series A bonds, $75.5 million of limited-tax Series B bonds, and $16.58 million of limited-tax Series C bonds. The bonds will be priced by Stifel, Nicolaus & Co.
The Texas Public Finance Authority, on behalf of triple-A rated Texas, which was not put on review last week by Moody’s, will issue $287.6 million of GO and refunding bonds. Underwritten by Jefferies & Co., the bonds are taxable with serial maturities from 2012 to 2031.
Market participants last week said issuers haven’t had time to reschedule deals in order to adjust their timetables for a possible default by the United States if lawmakers miss an Aug. 2 deadline to raise the federal debt ceiling. One trader said the crisis caught issuers unprepared to quickly sell new paper ahead of the deadline. The trader said some states have not completely finished their budgets, and so don’t know exactly how much money is needed, which is delaying issuance.
Towards the end of last week, the market was relieved that the massive primary issuance “was winding down without any major disruptions to muni market levels,” wrote Randy Smolik of Municipal Market Data, adding that investors didn’t need to sell something in order to find money to invest in the market.
“This underscored how much cash was on the sidelines after two of the most largest bond redemption months of the year,” he said.