Investors in the municipal market are starting to come to terms with higher yields for primary volume.
Though the market backed up last week due to a solid risk-on trade, new issuance found interested parties at adjusted levels. And larger deals at lower credit ratings did relatively well, industry pros say.
This week, volume should tick up to almost $8 billion from the $5.5 billion the market saw last week. Almost $920 million of California State Public Works Board lease revenue bonds should lead the way.
Municipal yields backed off noticeably last week, but still might need to adjust a little more to get through the calendars in the future, according to Ron Schwartz, a portfolio manager at StableRiver Capital Management.
“If they price [new volume] attractively, then it seems like there’s enough interest still in municipals that the deals can be done, but it’ll be at adjusted levels,” Schwartz said. “Right now, liquidity is limited in this sort of market, especially in the secondary.”
The latest industry estimates calculate that municipal bonds expected to be sold this week total $7.95 billion, versus a revised $5.52 billion last week.
That breaks down to $1.44 billion of competitive offerings scheduled for sale, compared with a revised $1.04 billion last week. In addition, $6.51 billion of negotiated deals are slated for sale, against a revised $4.47 billion last week.
Supply should keep a “healthy” pace this week, Municipal Market Data analysts Randy Smolik and Domenic Vonella wrote in a market post. But as muni financing rates have jumped significantly, the forecast could augur poorly for refinancing opportunities, they added.
“Therefore, a reduced pace of muni supply should not be out of the question in coming weeks, relative to recent amounts,” they wrote.
Some heavy deals weigh in this week in the negotiated calendar. Goldman, Sachs & Co. leads off as it expects to price $918.6 million of lease revenue bonds for various capital projects.
The bonds are rated A2 by Moody’s Investors Service and BBB-plus by Standard & Poor’s and Fitch Ratings. They are expected to arrive on Thursday.
JPMorgan follows with an expected $521 million pricing of San Antonio taxable electric and gas systems revenue bonds. They are rated Aa1 by Moody’s, AA by S&P and AA-plus by Fitch, and are set to price for institutions on Monday.
The debt will arrive as one term bond with a 2042 maturity. The deal will go to purchase the Rio Nogales plant, a combined-cycle natural gas plant.
JPMorgan is also expected to price $452.8 million of New York Liberty Development Corp. Liberty revenue refunding bonds. They are expected to arrive in three classes on Wednesday. The first, at $313.1 million, should be structured in serials from September 2028 through 2035, and then 2040. They are rated triple-A by Moody’s and Fitch.
The second class, at $108 million, is expected to arrive as a term bond maturing in September 2043. They are rated A2 by Moody’s and A by Fitch. The last class, at $31.7 million, should arrive as a term bond maturing in March 2024. They are rated Baa2 by Moody’s and BBB by Fitch.
JPMorgan is expected to price about $430.8 million of Ohio general obligation bonds in three series. The bonds, which should arrive on Tuesday, are rated Aa1 by Moody’s and AA-plus by Standard & Poor’s and Fitch.
The first series includes $300 million of higher education GOs. The second series entails $91.15 million of higher education GO refunding bonds. The third series encompasses $39.61 million of infrastructure improvement GO refunding bonds.
Only one major deal is expected to reach the market this week from the competitive calendar. New York City is set to auction $370 million of tax-exempt GOs rated AA by Fitch. The city is also expected to auction $100 million of GOs, Series G tax-exempt and Subseries G-2 taxable.