Volume in the new-issue market this week will slow to $5.54 billion, down from the robust pace of last week when municipals weakened under heavy supply.
Detroit’s bankruptcy filing on Thursday, had been priced into the market, so it alone isn’t expected to hamper the pricing of this week’s $5.54 billion of volume predicted by Ipreo LLC and The Bond Buyer, according to municipal experts. On Friday, weakness from the glut of recent supply and other market technicals caused the generic, triple-A GO scale in 2043 to end at 4.14%, up 11 basis points from the previous day, according to Municipal Market Data.
A combination of factors, including last month’s sell-off and recent testimony from Federal Reserve Board Chairman Ben Bernanke, have put the market in a delicate state and, as a result, some deals may need to be priced to sell.
“The market cannot take a punch; it is very fragile,” Jay Alpert, executive vice president of trading, sales, and underwriting at M.R. Beal & Co. said on Friday. “Outflows from the bond funds don’t help. Consequently, the deals will be priced to clear,” especially given the expectation for rising interest rates and lack of buyers during the summer doldrums, he added.
Among the biggest financings to test the market will be the Bay Area Toll Authority’s $750 million offering of San Francisco Bay Area subordinate toll bridge revenue bonds and a $400 million sale of Philadelphia general obligation bonds.
They will headline the slimmed down slate of issuance, which pales in comparison to the revised $8.32 billion that actually priced last week, according to Thomson Reuters.
The California toll deal -- its first new-money deal in three years -- is expected to be priced on Wednesday by Bank of America Merrill Lynch with ratings of A1 from Moody’s Investors Service and A-plus from Standard & Poor’s. The tentative structure is heavily-weighted on the long end and includes serial bonds maturing from 2027 through 2033 and term onds maturing in 2038, 2043, 2048, and 2053.
The last time the authority sold new money bonds was in October 2010 when it issued an $885 million deal consisting of subordinate revenue bonds and Build America Bonds, with yield ranging from 2.99% with a 3.25% coupon in 2019 to 4.95% with a 5% coupon in 2050.
Philadelphia, meanwhile, will come to market on Tuesday when Citi prices the deal with a structure that includes serial bonds maturing from 2016 to 2033 and a 2038 term bond. The bonds are rated A2 by Moody’s and A-minus by Standard & Poor’s and Fitch Ratings.
Two other large Northeast issuers will add to the region’s activity.
New York City will issue $375 million of GO debt on Wednesday when JPMorgan Securities prices the deal following a two-day retail order period scheduled for Monday and Tuesday. The bonds are rated Aa2 by Moody’s and AA by the two other major rating agencies, however the maturity structure was still being hammered out at press time, according to a source at the firm.
In addition, New York City will sell $125 million of GO debt in the competitive market on Wednesday, followed by a $435 million Maryland GO sale and a $200 million Connecticut GO sale.
A $300 million sale of public utility subordinate lien revenue bonds is also on tap from the District of Columbia Water & Sewer Authority on Tuesday. The bonds, which will be priced by Barclays Capital Inc., are rated Aa3 by Moody’s, AA by Standard & Poor’s, and AA-minus by Fitch. The maturity structure was not available at press time.