Investors returning from the Labor Day holiday will be met with slim pickings in the primary market this week as long-term volume is expected to drop to just over $1.50 billion this week, led by the pricing of two higher education financings on Wednesday.
With the market closed Monday in observance of the holiday, volume is estimated at $1.59 billion, according to Ipreo LLC and The Bond Buyer, which pales in comparison to the revised $3.95 billion that was priced last week, according to Thomson Reuters.
A $352.8 million sale of revenue bonds from the Board of Regents of Texas A&M University, and a $238 million financing from the New Jersey Economic Development Authority on behalf of Rutgers University will headline the activity as the week's largest deals.
They are part of $1.3 billion in negotiated volume earmarked for pricing, which is down from a revised $2.4 billion last week, according to Thomson Reuters.
The Texas deal will be priced by Wells Fargo Securities following a retail order period today. The financing will consist of tax-exempt and taxable revenue financing system bonds - both of which mature serially from 2016 to 2043 and will be rated Aaa by Moody's Investors Service and AA-plus by Standard & Poor's and Fitch Ratings.
The N.J. deal will consist of general obligation lease revenue bonds priced by Citi with a structure that includes serial bonds maturing from 2017 to 2033 and term bonds in 2038 and 2046. It is rated Aa3 by Moody's and AA-minus by the two other major rating agencies.
Despite recent weakness, investors should be eager to participate in various sweet spots along the municipal yield curve when the post-holiday market becomes fully operational again next week, according to Dorian Jamison, a municipal analyst at Wells Fargo Advisors.
"From a yield curve standpoint we've continued to find the intermediate portion to be most attractive," Jamison said. "The steepness between two and 10 years has been noticeably attractive - close to a two-year high. I think there's opportunity there for picking up yield."
The attractive ratios of municipals to Treasury and corporate bonds are another selling point, even considering the continuing outflows from municipal bond mutual funds, the threat of rising interest rates and the possibility the Federal Reserve will taper its bond purchases, as well as negative headlines from Puerto Rico and Detroit, he said.
Jamison also said value can be found in new deals this week that have a combination of quality and income.
He cited bonds from the double-A-rated credit sector, as well as premium coupon callable bonds, which, he said, offer a defensive stance in a rising interest rate environment as the higher coupon offers extra cash for reinvestment and the shorter duration protects investors from interest rate risk.
"The rising interest rates do offer some attractive opportunities and some selective buying opportunities, so we have continued to tell investors to use caution until bond fund outflows moderate," he added.
Jacksonville, Fla. will issue a $121.49 million sale of special revenue and refunding bonds on Wednesday. JPMorgan Securities structured the deal with three series, all of which are rated Aa2 by Moody's, AA-minus by Standard & Poor's, and AA by Fitch.
Series A consists of $54 million of revenue and refunding bonds maturing from 2014 to 2040, while Series C consists of $31.2 million of refunding bonds from 2027 to 2030. The $36.1 million Series B is a taxable revenue and refunding maturing from 2014 to 2026.
Volume in the competitive market is expected to drop to $290.5 million, from a revised $1.56 billion last week. The largest deal is a $215.52 million sale of second lien sewer system revenue and refunding bonds from Portland, Ore., slated for Wednesday. Structured to mature serially from 2014 to 2038, the bonds are rated Aa3 by Moody's and AA-minus by Standard & Poor's.