WASHINGTON, June 27 (Reuters) - The anemic U.S. municipal bond market will see more meager growth next week when only an estimated $2.45 billion municipal bonds are sold, the smallest weekly total issuance since January, according to Thomson Reuters estimates.
Nonetheless, the week will see an uptick in refinancing. As interest rates scraped record lows in 2012 and part of 2013, municipal bond issuers embarked on a refunding binge. When rates began rising in the middle of last year, though, refinancing ground to a halt.
Interest rates rose in the middle of June, then began falling again over the last week, with 30-year top-rated debt yielding 3.29 percent on Municipal Market Data's benchmark scale on Thursday afternoon and highly rated 10-years yielding 2.27 percent.
The two largest negotiated deals out of an estimated total of $1.32 billion next week will go toward refinancing.
Ohio's Lancaster Port Authority will refund gas supply revenue bonds of $321.63 million, with RBC Capital Markets as lead underwriter. The Dallas Independent School District in Texas will also refund $317.75 million unlimited tax bonds, with J.P. Morgan Securities as top manager.
Alabama Public School and College Authority will bring the biggest competitive sale of the week, with its $554.52 million capital improvement refunding bonds sale on Tuesday constituting nearly half the $1.13 billion total sales.
Recently, analysts have revised down forecasts for 2014 supply as issuance has trailed last year's sales so far by 25 percent. Most of the dropoff has come from the dearth of refinancing.
Next week's total sales will be the smallest since $2.24 billion bonds came to market in the week of Jan. 5.
Still, the meager issuance, when the market will close for the July 4 Independence Day holiday, is typical for this time of year. During the same week last year, only $2.12 billion bond sales came to market.
And buyers are greeting a recent pick-up in supply this month with hope. Total sales for the current week through Thursday were $7.6 billion, according to Thomson Reuters estimates. They are expected to top $8 billion.
"The muni market appeared to be well balanced, with heavier issuance offset by broad-based demand," wrote analyst George Friedlander in a commentary for Citi Research. "We continue to believe that the muni market may ripe for a bit of a test, with issuance remaining quite solid." (Reporting By Lisa Lambert)