WASHINGTON Feb 21 Next week will feature three large and atypical sales of U.S. municipal bonds, as a drought of primary issuance stretches on with only $2.87 billion in new debt coming to market, according to Thomson Reuters estimates.
The largest deal will be taxable, a $270 million tax allocation refunding sale from the successor agency to the Inland Valley Development Agency in southern California. The sale, for which Barclays Capital will serve as lead underwriter, tops a negotiated calendar totaling $1.77 billion.
The second-largest negotiated sale also comes from California. The state's school cash reserve program authority will sell $200 million tax and revenue anticipation notes through Piper Jaffray & Co.
The authority is unusual in the realm of school finance - it was created in 1978 when California's Proposition 13 eliminated school districts' use of general obligation bonds. Even though general obligation debt was restored in 1986, more than 200 school districts and other education agencies pool their borrowing through the authority's twice yearly note sale.
In a twist, the largest tax-exempt issue next week is on the competitive calendar, a $225 million general obligation issue from Delaware scheduled to price on Thursday. The competitive calendar, where investors typically bid on very small deals, will total $1.1 billion.
Rising interest rates and lucrative stock market returns pushed some investors from the U.S. municipal bond market in the second half of 2013, while financial troubles in Detroit and Puerto Rico sent others running for the exits.
The market has recently stabilized. The investment-grade part of the market has returned 2.55 percent for the year-to-date, according to S&P Dow Jones Indices. Yields on the S&P National AMT-Free Municipal Bond Index have fallen 58 basis points, as well, to end on Thursday at 2.53 percent.
Still, primary issuance remains low, mostly as refinancing dries up. As interest rates rose at the end of 2013, most issuers found they could no longer save money by refinancing debt.