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Volume Curbed in November

DEC 1, 2012 5:18am ET
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November saw the municipal bond market take a break from the surge in new issue volume that has dominated most of 2012.

Long-term muni bond issuance last month fell 20%, to $30 billion in 1,079 issues as Hurricane Sandy, the U.S. elections and the Thanksgiving holiday stifled issuers. That compares with $37.3 billion in 1,205 issues the market saw in November 2011.

But volume is still up 31% for the year to date, Thomson Reuters numbers show. Total issuance through the first 11 months of the year registered $343.8 billion in 11,849 issues. That’s a jump from the same period in 2011, when $263.4 billion in 9,644 deals was issued.

And refundings, which have played a prominent role in elevated volume numbers this year, were flat at $11.8 billion in 475 deals compared to roughly the same amount in November of 2011 when 507 refunding deals were floated.

For the year to date, refinancings are up 74%, to $144.8 billion in 5,627 issues, against $83.2 billion in 3,512 deals through the first 11 months of 2011.

New money deals fell 31% for November, to $13.1 billion in 523 issues, compared with just under $19 billion in 609 deals in November 2011. For the first 11 months of 2012, new money issuance is down 2%, to $129 billion in 5,140 issues, against $132.2 billion in 5,336 deals.

November numbers are in line with industry expectations, market watchers say, especially considering that November was a presidential election month.

For the past 10 years, November volume has accounted for about 8.8% of the yearly issuance, on average, said Vikram Rai, a municipal strategist at Citi.

Looking over the past few presidential election years — 2004, 2008, and 2012 — issuance has been much lower. On a percentage basis, the monthly average totals roughly 7% of yearly volume, Rai said.

With an expectation of 2012 issuance at around $375 billion, rounding out the numbers, Citi calculates November will comprise about 7.2% of the year’s total volume.

“The election year is a distraction,” Rai said. “I don’t think it has anything to do with uncertainty.”

November numbers did not step outside of expectations, said Sean Carney, BlackRock muni strategist. Still, investors still would like to see more of it, he added.

“Issuance continues to underwhelm market participants as demand remains robust, Carney said. “If November issuance tells us anything, it’s that historical patterns will likely remain intact, and there will not likely be a rush-to-issuance scenario that would disrupt the market going into year-end.”

The largest sectors, such as general purpose, education, transportation, and utilities, recorded a mixed November. General purpose issues fell 24% on the month, to $8.1 billion from $10.7 billion. Transportation deals fell 25% last month, to $3.6 billion from $4.8 billion.

Education issues, meanwhile, rose 22% in November over the same month in 2011, to $8.4 billion from $6.9 billion. Utilities deals increased 16% over the span, to $4.3 billion from $3.7 billion.

For the year to date, education and general purpose issues are up 25% and 32%, respectively.

Fallout from Hurricane Sandy likely had something to do with the dramatic decline in issuance for development, electric power and public facilities last month, Citi’s Rai said. The three sectors fell 97%, 65%, and 68%, respectively, last month from November 2011.

“Because of Sandy, a lot of these projects got delayed,” Rai said. “You have issuers who probably felt that they need to assess what the requirements are going to be. So, we might see these numbers pick up in December; the can just got kicked down the road.”

Negotiated deals fell 18% last month from one year earlier, to $24.1 billion from $29.4 billion.

Competitive issues dropped 12% over the same period, to $5.7 billion from $6.4 billion.

Revenue bond deals fell 23% in November, year over year, to $20.3 billion from $26.4 billion.

General obligation bonds, by comparison, decreased 11%, to $9.7 billion from $10.9 billion.

Variable-rate, short-put, issues registered a 70% decline in November compared with one year earlier, to $846 million from $2.9 billion in November 2011. But direct issuers saw a whopping 2,526% increase over the same period, to $1.5 billion from $57 million.

Among government issuers, state governments and state agencies floated 11% and 25% less in November 2012 compared with one year earlier. Districts, however, saw issuance rise 22% over the same period.

Issuers from the state of New York floated more muni debt than any other state through the first 11 months of the year. The Empire State issued $45.1 billion in 814 deals over the period, compared with $32.8 billion in 553 issues through the first 11 months of 2011, a 37% increase.

New York traded places with issuers in California, which ranked second through November 2012. The Golden State saw $39.1 billion in 676 issues through November. That represents an 18% jump — from $33.2 billion in 690 deals — over the amount the state saw through the first 11 months of 2011.

Texas ranked third, as it did in the first 11 months of 2011, issuing $34.8 billion in 1,208 issues through November. That compared with $22 billion in 963 deals over the same period one year earlier, representing a 58% rise.

Florida and Illinois rounded out the top five. Issuers in the Sunshine State jumped two spots as they floated 42% more in muni debt, to $15.5 billion in 212 issues, compared with $10.9 billion in 193 deals through the same period in 2011.

Illinois issuers floated $15.4 billion in muni debt in 606 deals through the first 11 months of the year, a 25% increase. That compared with $12.4 billion in 470 issues it did over the same period one year earlier, in which it ranked fourth.

November boasted just one deal that cracked the $1 billion mark, and none at more than $900 million. The Texas Municipal Gas Acquisition & Supply Corp. issued $1.396 billion of bonds on Nov. 19.

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