NEW YORK, May 2 (Reuters) - U.S. municipal bond sales will total an estimated $4 billion next week, down from a revised estimated $5.8 billion this week, as demand continues to outstrip supply in the paper-starved tax-exempt market.
Negotiated sales are expected to total more than $3 billion, with just $820 million of competitive offerings, according to Thomson Reuters estimates on Friday.
Supply for the month of April was low at $23 billion altogether, 18 percent below 36 billion sold in April 2013. Because a majority of candidates for refundings are callable in the summer, a slight uptick in refunding bond issuance could come in the next few months, analysts at Morgan Stanley Research said on Friday.
Meanwhile, investor demand in April was positive, with fund flows totaling $484 million for the month, they said. But with expected rate increases and lower returns on the horizon, it is not clear whether the supportive liquidity environment that muni bonds have been enjoying will continue, Morgan Stanley said.
While muni supply usually falls briefly after the end of the first quarter, the month of April saw a sharp 18 percent month-over-month decline, or more than double the average decline of 7.6 percent for that period, said RBC Capital Markets' Chris Mauro on Friday.
Next week's calendar is marked by a lack of deals even approaching the $1 billion range. The biggest deal is a $450 million sale of Illinois State Toll Highway Authority senior revenue bonds, to be offered in serial maturities from 2026 through 2034.
Proceeds will be used in conjunction with the authority's 15-year, $12.1 billion capital improvement plan, which was approved in August 2011, according to the preliminary official statement.
Citigroup Global Markets is the senior manager on the negotiated deal, which is expected to price on Wednesday.
About 85 percent of the authority's labor force is unionized. Most are operating under current contracts, but one group of 569 toll collectors, warehouse workers and other employees is currently in contract negotiations after their previous one expired at the end of 2012.
About 240 white collar employees are also currently working without a contract.
The authority's payments into the state's poorly-funded pension system are also on the rise. Its 2014 contribution is $44.5 million, up from $30.3 million in 2010, according to the POS. (Reporting by Hilary Russ; editing by Andrew Hay)