Despite a Labor Day holiday-shortened week, the municipal market could see new issuance almost double from last week.
And while that sounds like positive news, the $3 billion in expected issuance this week is one of the lowest weeks of volume seen all year, and remains a far cry from issuance last year.
The expected $3 billion is up from last week’s revised $1.7 billion, a paltry number due in part to Hurricane Irene slamming the East Coast. Negotiated sales will more than double, with $2.54 billion coming this week versus a revised $1 billion last week. On the competitive calendar, $455.3 million will come to market versus a revised $687.6 million last week, according to Thomson Reuters and Ipreo.
And this week’s deals come on the heels of mixed reception last week. Several pricings were delayed due to poor activity and the hurricane, including the San Diego County Water Authority — which also reduced the size of its loan — and the New York Local Government Assistance Corp.
But when LGAC did come to market on Wednesday, it was very well received, according to Municipal Market Data analyst Randy Smolik. “Bidding was very aggressive,” he said, adding that “both LGAC and lottery deals received a fair reception.”
However, fairly limited supply and lack of activity has kept buyers on the defensive, creating a wide spread between bid and ask prices. “The traditional buyers wanted to sit out the market and wait for primary supply surge after Labor Day to provide a concession to deals,” Smolik said. “But, given the Treasury rally [Friday], they may not have that luxury.”
The biggest deal coming after Labor Day is a $511 million issue from the Harris County, Texas Metropolitan Transit Authority. Coming to market Thursday, the sales and use tax bonds will be priced by Goldman, Sachs & Co. The bonds are rated Aa2 by Moody’s Investors Service and AA by Standard & Poor’s.
The New York State Thruway Authority will also come to market Thursday with $350 million of state personal income tax revenue bonds. Priced by Siebert Brandford Shank & Co., the serial bonds have maturities ranging from 2012 to 2026. They are rated AAA by Standard & Poor’s and AA by Fitch Ratings.
Over $250 million of water and sewerage revenue refunding bonds will be issued by Fulton County, Ga., on Tuesday. Citi is the lead manager and the serial bonds have maturities from 2013 to 2028. They are rated Aa3 by Moody’s and AA-minus by Standard & Poor’s and Fitch.
The fourth-largest deal of the week, coming in at almost $200 million, comes from the Indianapolis Local Public Improvement Bond Bank. The bonds will be priced by JPMorgan on Thursday and have serial maturities ranging from 2013 to 2027. The bonds are rated A1 by Moody’s and A by Standard & Poor’s.
The competitive calendar remains lackluster, with only three deals topping $50 million.
And while new issuance is edging up slightly, it doesn’t appear to be doing enough. “New issue volume will end up just over $20 billion in August, slightly above this year’s monthly average,” wrote Tom Kozlik, municipal credit analyst at Janney Capital Markets, in an Aug. 31 note. “The low rate environment will likely generate an increase in refundings in coming months, but there is no sign that new-money issue volume will increase post Labor Day, with the 30-day visible supply hovering around $4 billion, the lowest level of the year.”
Indeed, if August was a preview of what is to come in the refunding market, investors could see a pick-up in volume as decade-low yields prompt a surge in the refunding space. For the month of August, refunding was up almost 60% from August 2010, with over $9 billion coming to market versus last year’s $5.7 billion.