A $1.7 billion Los Angeles Unified School District general obligation refunding planned for this week will help boost volume to the highest in three months, and help satisfy pent-up demand among eager, cash-flush investors, according to municipal traders.
According to Ipreo LLC and The Bond Buyer, an estimated $8.67 billion is headed to market, led by the Los Angeles school deal, the second time in as many weeks that a Los Angeles municipality dominated the new-issue calendar.
The forecasted volume is the most since the week of March 10, when $11.37 billion came, according to Thomson Reuters, aided by the highly-anticipated, $3.5 billion Puerto Rico GO sale.
This week's supply surge follows a revised $5.61 billion that was actually priced last week when a $900 million Los Angeles County tax and revenue anticipation note sale was quickly snapped up by investors. The notes had a 0.12% yield with a 1.5% coupon maturing in 2015 with no call option. The deal received an MIG1 rating from Moody's Investor Service, SP-1+ from Standard & Poor's and F1+ from Fitch Ratings.
This week, the L.A. school deal is slated for pricing on Thursday by JPMorgan Securities following a retail order period on Wednesday. The bonds are structured as four series with various maturities from 2015 to 2031, and rated Aa2 by Moody's, and AA-minus by Standard & Poor's.
The beefed-up calendar contrasts the anemic supply for much of 2014. Issuers should benefit from a summer reinvestment season that is in full swing, traders interviewed last week said.
Weekly issuance in 2014 has generally hovered between $3 billion and $4 billion.
The trader said there is cash on the sidelines that is likely to chase this week's large calendar ahead of the July 1 coupon reinvestment and following the rise in muni yields influenced by the recent Treasury weakness. "A back up is good for the market, especially coming into some supply next week," the trader said Friday when the triple-A GO scale in 30 years ended at 3.36% after rising eight basis points from 3.28% last Monday, according to Municipal Market Data.
"There was some block bidding on weakness this week, and there are customers looking out for cheaper prices and putting money to work," he said.
Long-term bond sales from January to May totaled $115.14 billion among 3,959 deals, a 24.8% decline from the $153.03 billion in 5,505 deals that were priced in 2013, according to data as of June 4 provided by Thomson Reuters.
Another New York trader said he is not concerned about how this week's added supply will impact the market.
"There will be plenty of good buyers, and the timing is pretty good," he added. "You have people building up cash and the market is in a pretty good position technically to absorb all the new supply. Buyers feel way under-invested," he explained.
An $850 million sale of New York City GOs led by Morgan Stanley & Co. will mature serially from 2015 to 2036 and will be priced on Wednesday following a retail order period on Monday and Tuesday. The bonds are rated Aa2 by Moody's and AA by both Standard & Poor's and Fitch.
Houston, Texas, will also make an appearance this week with a $527.5 million sale of combined utility system first lien revenue and refunding bonds.
Goldman, Sachs & Co. will price the deal on Thursday with a structure of serial bonds maturing from 2015 to 2034 and term bonds in 2039 and 2044. The bonds are expected to be rated AA by both Standard & Poor's and Fitch.
