Volume will drop below $6 billion in the coming week as new issuance tapers off after observance of Memorial Day on Monday. The postponed pricing of battered Chicago general obligation bonds may dominate the headlines, though Pennsylvania has the biggest deal on tap.
Pennsylvania's $1.23 billion general obligation sale is slated to come to the competitive market on Wednesday. A $460 million new-money series will mature from 2016 to 2035, while a $777.23 million refunding portion will mature from 2016 to 2026.
The deal will be part of the estimated $5.83 billion in new issuance that is expected to price, according to Ipreo LLC and The Bond Buyer. That is down from the revised $8.41 billion that came to market in the past week, according to Thomson Reuters.
Negotiated supply will dip to an estimated $3.67 billion, from a revised $6 billion, while competitive sales will remain relatively consistent, with an estimated $2.15 billion headed to market, versus last week's revised $2.41 billion.
Muni traders expect another challenging week.
"The supply continues the underperformance in our market, and the volatility in the Treasury market continues," a New York trader said on Friday, adding net outflows of approximately $100 million in municipal mutual funds this week to the list of challenges.
"Intraday volatility is substantial, and it's causing some investors to go on the sidelines," he said. "But, new issues continue to be cheaper than the secondary - for people with money to put to work."
The secondary market, he said, is clogged with unsold balances from recent new deals, and that is weighing "a little heavy on the market."
Meanwhile, the market's collective eyes will be on the GO sale from Chicago - which traders expect to come cheap due to its credit getting hammered last week with three downgrades, which triggered the deal to be postponed from its originally scheduled May 19 pricing.
Moody's Investors Service downgraded the GO debt to speculative grade on May 12.
"Obviously that's a real question mark whether it's going to reprice the market," the New York trader said.
"A lot of people think the new deal is going to have to come cheaper, and will that be another wave of cheapening over concern for credit in general," he added.
"It's been under some pressure and the question is how deep is the market for that deal at this point?" he asked, but added: "it's still early in the game."
After being delayed from its original pricing date of May 19, Chicago will fold its conversion to fixed-rate of $800 million in floating-rate GO paper into one transaction pricing Wednesday with Bank of America Merrill Lynch running the books.
Citi, Ramirez & Co. Inc., and Siebert Brandford Shank & Co. will be co-senior managers. Another eight firms round out the syndicate on the transaction. Columbia Capital Management Inc. is advising the city on the deals.
The city's aim in folding the deals together and putting a Wall Street bank with deep pockets at the helm is to hold down the yield penalties it will pay due to its ratings and liquidity turmoil.
In disclosure tied to the offering, Chicago reported that it arranged forbearance agreements with banks that support its GO bonds until after their planned closing dates on May 29 and June 6, and more significantly, on its short-term credit lines. The city also reported it has a new line and an expanded one now in place.
The forbearances ease the threat that banks could demand more than $1.6 billion.
Spreads on Chicago paper shot up dramatically in secondary market trading following the Moody's downgrade. The city faces a narrowing of its investor base with a junk bond rating but will find an audience among those looking for yield.
In other pricing, the Montgomery County, Pa., Industrial Development Authority will sell $454.59 million of health system revenue bonds in a negotiated deal led by book-runner Bank of America Merrill Lynch.
Rated Baa2 by Moody's and BBB by Standard & Poor's, the bonds are slated to be priced on Thursday on behalf of the Albert Einstein Healthcare Network.
In the Southeast market, the Miami-Dade County School Board will issue $460.74 million of certificates of participation in a negotiated deal senior-managed by Citigroup and planned for pricing on Thursday.
The bonds are expected to be rated A1 by Moody's and A by Standard & Poor's and are structured to mature from 2016 to 2033.
