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January Sees an Uptick

JAN 31, 2012 6:45pm ET
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For all of the talk about light supply in the municipal bond market, the month of January still saw an uptick in volume from the same period in 2011.

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Long-term muni bond issuance was 17.6% higher in January 2012 than it was in January 2011. That breaks down to 615 issues worth $14.64 billion in January, compared with 499 issues that total $12.44 billion over the same period in 2011, according to Thomson Reuters numbers.

Sectors such as development, electric power, education, utilities and general purpose all saw marked increases. State governments, counties and parishes, districts and colleges, and universities also saw large jumps.

Most projections from industry analysts pointed to a slight increase, year over year, from 2011 to 2012, said Peter Hayes, managing director and head of municipal bond trading at BlackRock. So January’s issuance would appear to fall in line with the estimated numbers, he added.

“The market’s very different than it was in January 2011, as well,” Hayes said. “That adds to a better environment for borrowers.”

This is true. While volume numbers for last month’s issuance may be slightly better than they were in 2011, the mood of the market sits in sharp contrast. At the dawn of January 2011, market participants saw thunderheads gathering everywhere they looked in the form of higher rates, low demand, fiscal austerity, and massive withdrawals from muni bond mutual funds.

The forecast for the muni market in January 2012, though, was considerably sunnier. A rally late into the fourth quarter of 2011 pushed muni yields on the intermediate and long ends of the curve into record low territory throughout the month. This January also saw a considerable supply-demand imbalance that was driven by light seasonal issuance and January reinvestment monies, as well as positive state and municipal budgets and strong inflows into muni bond funds.

But while January volume has increased over the same period a year earlier, it still pales before that of 2010, when Build America Bonds juiced the numbers considerably. By comparison, January 2010 saw 740 deals worth $32.7 billion.

While most sectors saw higher volume last month, health care saw the largest drop over the period, at 59%. Volume fell to just under $870 million on 15 deals last month, from $2.12 billion on 22 issues a year earlier.

Both tax-exempt and taxable issuance saw a boost last month. Tax-exempt issuance rose 16% in January 2012, to $13.2 billion on 564 issues, from $11.35 billion on 436 deals. Taxable volume increased 47% last month from January 2011, to $1.44 billion on 51 issues from $981 million on 60 deals.

Refundings also saw a significant rise in volume last month. While new-money deals rose about 3% year over year, refundings jumped 49%.

That works out to 302 issues worth $4.58 billion last month, compared with 180 issues worth $3.07 billion in January 2011. “As long as rates stay low,” Hayes said, “the trend toward current refundings probably will be maintained.”

New general obligation deals were up 75% in January 2012 compared with a year earlier. There were 422 GO issues worth $7.53 billion, compared to 352 such deals totaling $4.30 billion.

But new revenue issues fell almost 13% in January from one year earlier. In 2012, there have been 193 revenue issues worth $7.11 billion last month, against 147 deals worth $8.14 billion in 2011.

Colleges and universities saw the largest jump in issuance last month when compared with January 2012. Their numbers were up a whopping 612%.

For districts, volume over the same period rose 134.2%. January 2012 saw 282 deals worth almost $3.80 billion, against, 208 issues worth $1.62 billion one year earlier.

State agencies saw a drop of roughly 28% last month, or $2.86 billion from $3.96 billion one year earlier. Local authorities issued about 15% less last month than they did one year earlier, or $2.59 billion from $3.03 billion in 2012.

New York, the number one state in January 2011, dropped to second place this time around, only to be replaced by the fifth-ranked state: Texas. In fact, Texas’ volume jumped 69% year-over-year, to $1.48 billion on 58 deals from $878 million on 59 deals.

While New York stumbled from the top spot, doing about 42% less in volume than it did in January 2011, it still had a decent month. The state issued $1.41 billion this January on 36 deals, from $2.45 billion on 33 deals. California fell one spot to third. Its volume dropped 30.5% in January 2012 to just under $1.27 billion on 35 deals, from $1.82 billion on 33 deals.

Florida and Illinois followed in fourth and fifth places, respectively. While Florida jumped five spots, doing about 258% more in volume than in January 2011, Illinois ascended from its seventh-place ranking by issuing almost 66% more volume.

A large number of states saw an upsurge in issuance, said Christopher Mier, a managing director in the analytical services division at Loop Capital Markets. “Of the 43 states who issued in both years in January,” he said, “Twenty-nine, or two-thirds, had increases in issuance relative to January 2011.”

The muni market recorded no billion-dollar deals in January. Still, Illinois issued the largest, a competitive deal worth $525 million in general obligation bonds.

Massachusetts followed with $463 million of new money and refundings GOs. Separate $400 million offerings by the Port Authority of New York and New Jersey and the New York City Municipal Water Finance Authority tied for third.

Tuesday’s $978.6 million competitive auction of long-term Washington state GOs in two pricings is not included in the January numbers even though it was officially issued on the last day of the month. This is because it technically won’t close until February.

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