New issuance remains sparse with a light calendar this week on the heels of last week’s slim pickings.
According to Ipreo LLC and The Bond Buyer, an estimated $4.4 billion of new volume is expected to be priced this week. That compares to a slightly more paltry $4 billion revised from last week. While volume is slightly higher than last week, it still does not match the roughly $8 billion weekly average for 2010.
“The rally over the last several weeks in municipals has brought levels down to where issuers who need to come to market with transactions should be enticed,” John Hallacy, municipal research strategist at Bank of America Merrill Lynch, wrote in his weekly column.
The 18-session rally in the muni market took a breather Friday as April’s nonfarm payroll report posted better than expected numbers, inducing investors to consider riskier assets.
Mike Pietronico, chief executive at Miller Tabak Asset Management, said he senses a pause in the muni rally, rather than a reversal. But if yields keep falling, buyers could turn away from individual bonds and into tax-exempt mutual funds in a search for yield.
“Once the muni [fund] flows turn positive, the rally is over — that would be a very good contrarian sign,” Pietronico said Friday, noting that municipal mutual funds have seen net outflows for 25 weeks now.
“Once retail comes in and buys mutual funds, it’s generally an indication that they can’t find yield in the secondary market,” he added.
Last week’s biggest deal was a $600 million issue from the New Jersey Transportation Trust Fund Authority. The Series 2011A bonds are rated A1 by Moody’s Investors Service, A-plus by Standard and Poor’s, and AA-minus by Fitch Ratings. Given extremely low supply, investors ate up the bonds. Institutional pricing was moved up a day to Tuesday, the same day as the retail order period.
Bonds maturing between 2024 and 2041 were repriced, lowered anywhere from five to 16 basis points, according to Thomson Reuters.
In a statement, New Jersey Treasurer Andrew Sidamon-Eristoff said the TTFA was able to sell $217.8 million of 30-year bonds at a yield of 5.47%, saving the authority roughly $20 million.
“Demand was overwhelming, allowing the state and its banks to sell all our bonds in one day rather than the two days usually required for a sale to retail and institutional investors,” he said. “In addition, state bonds were sold at yields far better than their underlying ratings, which is extremely good news for taxpayers.”
On Friday, the 30-year triple-A muni bond closed at 4.45%, according to Municipal Market Data.
If investors remain hungry, new issuance this week could play out well for borrowers too. An estimated $1.3 billion in competitive offerings are expected this week, compared to a revised $604 million last week. Also slated for this week are $3.1 billion in negotiated deals, compared to a revised $3.4 billion last week.
This week’s activity is led by offerings from the Virginia Commonwealth Transportation Board and the Fairfax County Economic Development Authority.
The Virginia Transportation Board plans to issue $600 million of serial bonds in a competitive bidding, with maturities ranging from one to 25 years. According to bond documents, maturities can be combined into term bonds by the successful bidder. They are rated Aa1 by Moody’s and AA-plus by Standard and Poor’s and Fitch.
“I think it’s going to be a good week for everyone,” said the board’s chief financial officer, John Lawson, adding that he expects to see demand for the high-quality bonds.
The financial adviser is Public Resources Advisory Group and McGuireWoods LLP is providing bond counsel.
The Fairfax County EDA will issue $206.3 million of transportation district improvement revenue bonds with a negotiated pricing. The bonds will be priced by JPMorgan and are rated Aa2 by Moody’s and AA by Standard & Poor’s and Fitch. The serial bonds have maturities ranging from one to 20 years with a $62.7 million term bond maturing in 2036.
Other underwriters include Citi, Edward Jones, Morgan Keegan & Co., Morgan Stanley, and Piper Jaffray & Co. Hunton & Williams LLP is providing counsel to the underwriters. Public Financial Management is the financial adviser and Sidley Austin LLP is the bond counsel.
Also coming to market this week is a $286 million general obligation bond issue from Wisconsin. Set to be priced by Citi, the serial bonds are expected to have maturities ranging from one to 10 years. The bonds are rated Aa2 by Moody’s and AA by Standard & Poor’s and Fitch.