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December Muni Volume Climbs 4%

DEC 31, 2012 1:38pm ET
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Long-term municipal bond volume rose modestly for the month of December, closing the door gently on 2012, a year that saw record low interest rates spur an upsurge in refundings.

Issuance last month increased 4% from the same period in 2011, to $25.3 billion in 948 deals from $24.4 billion in 930 issues. For the year, long-term issuance jumped 30%, to $373 billion in 12,918 deals, from $288 billion in 10,574 issues in 2011, Thomson Reuters numbers showed.

Amid record low yields, refundings accounted for much of the growth, industry pros said.

Refis rose 72% in 2012, to $155.1 billion in 6,105 issues, against $90.4 billion in 3,909 deals the previous year. New money deal numbers, by comparison, fell 2% to $143.5 billion in 5,634, from $146.2 billion in 5,804 issues.

But new money deals should increase in 2013, said Vikram Rai, municipal strategist at Citi. "New money issuance in 2012 was probably close to the lowest in a decade and I expect it to increase going forward to meet infrastructure and public utility needs," Rai said. "A lot of this increase will be driven by New York, and also New Jersey, as the rebuilding efforts after [Hurricane] Sandy ramp up."

For December, refi deal numbers climbed 7%, $7.7 billion in 407 issues. That compared with $7.2 billion in 397 deals over the same period one year earlier. New money deal numbers in December rose 3% to $14.4 billion in 471 issues, against $14.0 billion in 468 deals in December 2011.

December volume fit recent historical issuance patterns, said John Dillon, chief municipal bond strategist at Morgan Stanley Wealth Management. December volume ended almost in parity with that of 2011, while monthly issuance during 2012 largely followed historical patterns during the year: lower-issuance months surrounding the year-end and during the summer.

"But when you benchmark it against 2011, which had a good amount of anomalies in the front part of the year - when BABs pulled forward issuance into 2010 - the optics made the first half of this year look a lot more robust than it actually was," Dillon said.

Overall, a deeper look showed that the year's higher volume numbers could be misleading, Dillon added.

"All the while, while we're putting up these big percentage gains year-over-year, investors were scrounging for paper, because pure new-money issuance was only 38% of all the issuance in 2012," Dillon said.

"The lion's share was refunding, primarily. It looked like there were all these bonds around, but the net supply was minimal, in fact negative throughout much of the year."

For the industry's larger issuers, December numbers were mixed. Transportation deals boomed, rising 126% on the month from one year earlier to $7.0 billion in 49 issues from $3.1 billion in 25 deals in December 2011.

General purpose issues fell 26% last month, to $5.3 billion in 273 deals from $7.3 billion in 253 issues in December 2011.

Education deals climbed 11% in December to $4.8 billion in 318 deals, from $4.3 billion in 329 issues one year earlier.

For the year, all three issuer groups rose. Transportation issuance increased 66%, general purpose deals 27%, and education issues 25%.

Tax-exempt numbers rose last month by just 3% to $22.4 billion in 832 issues from $21.2 billion in 805 deals. That compared to a 22% decline in taxable volume in December 2012 versus the same period one year earlier, to $2.0 billion in 104 deals from $2.6 billion in 111 issues.

Revenue bond numbers also took a hit last month, falling 9% to $16.9 billion in 373 deals from $18.6 billion in 371 issues. General obligation issuance, by contrast, rose 45% in December to $8.4 billion in 575 deals from $5.8 billion in 559 issues in the same month in 2011.

Fixed-rate issuance was flat for the month, at roughly $21.9 billion for December 2012 and 2011. Variable-rate short-put rose 33% last month, to just under $2 billion from almost $1.5 billion one year earlier.

Variable-rate long-put and no-put issuance fell 96% last month, though, to $17.5 million from $390 million in December 2011.

Among the largest state and local government issuers, most floated more debt last month than they did in December 2011.

Issuance for cities and towns rose 23%, districts 45%, and local authorities 33%. Volume for state agencies fell 20%.

The top-five issuing states changed little in 2012 from one year earlier. Issuers in New York held the top spot, floating $48.7 billion in 883 deals, against $36.7 billion in 620 issues, a 33% jump.

California once again placed second, witnessing an 18% increase. The Golden State issued $41.6 billion in 730 deals, compared with $35.4 billion in 741 issues.

Texas again claimed third place, with a 64% bump in issuance. The Lone Star State had $38.2 billion in 1,321 deals last year, against $23.3 billion in 1,055 issues in 2011.

Florida climbed two positions in 2012 to fourth on 52% more issuance. The Sunshine State floated $17.6 billion in 243 deals, against $11.6 billion in 213 issues in 2011.

Pennsylvania once again occupied fifth place, on 26% more issuance. Issuers in the Keystone State floated $16.2 billion in 652 deals last year, compared with $12.8 billion in 521 issues one year earlier.

Three deals topped $1 billion last month. On Dec. 19, the Indiana Finance Authority issued $1.26 in industrial development bonds, the month's largest deal. The Iowa Finance Authority issued $1.19 billion in industrial development one day earlier.

New York City floated just more than $1 billion in GOs.

Some estimates are in for 2013. Gross issuance should rise to be more than $400 billion, with net issuance around plus-$20 billion, Citi's Rai said.

"And I also expect new money issuance to be closer to around $200 billion, which includes the new money portion of the combined deals."

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