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Rate Rise Sinks Muni Volume in June

June, traditionally a strong month for municipal bond issuance, provided more bad numbers in a difficult period for the market.

Monthly Data

Long-term muni bond volume for June plunged 46.5% from the same period in 2012, to $23.2 billion in 932 issues from $43.4 billion in 1,233 deals, final numbers from Thomson Reuters showed.

That brought the amount of issuance for the first half of the year to 11.5% less than was issued through the first six months of 2012. That amounts to $172.9 billion in 6,281 deals through June, compared with $195.3 billion in 6,991 issues one year earlier.

“Total volume literally collapsed from last year,” said George Friedlander, municipal bond analyst at Citi. “Some of that was related to the rates spike, but it was still an awfully small number.”

An overwhelming majority of the monthly numbers fell in June, including 2013 stalwart categories New Money and Taxable issuance, which decreased 25.3% and 24.1%, respectively.

Taxable issuance through the first six months of 2013, though, is up 89% from 2012, to $24.1 billion from $12.8 billion. New money volume has fallen 0.7% over the same period in 2013 against one year earlier, to almost $70 billion from $70.1 billion.

For the year to date, refundings have fallen 20% from a year earlier, to $69.6 billion from $87.1 billion.

To be sure, June was a cruel month for munis. Selling accelerated from June 19 through June 24, following the latest Federal Open Market Committee meeting.

Triple-A tax-exempt yields rose substantially across the curve, adding to a selloff that started one month earlier. The 10-year triple-A jumped 53 basis points during the month. The 30-year yield vaulted 67 basis points; the two-year rose 20 basis points.

“What just happened would’ve been worse if we’d had a regular month’s volume and we had a more consistent stream of tax-exempts,” Friedlander said.

By the end of the third week, muni ratios to Treasuries climbed to attractive levels of well past 100%, raising demand, luring crossover buyers and halting the plunge in muni bond prices.

Still, outflows to muni bond funds passed $1 billion each week of June, including a record $4.53 billion the week of June 26.

Almost every sector posted negative numbers for June. Among the largest, education issuance fell 19.4% last month against one year earlier, to over $7 billion from $8.8 billion. General purpose fell 47.3%, to $7.4 billion from $14.1 billion in June 2012. Utilities issuance dropped 38% for the month, to just under $3 billion from $4.8 billion last year.

Tax-exempt volume fell 48.5% in June, to $20.2 billion from $39.1 billion in June 2012. Taxable issuance, by comparison, which thus far had recorded a torrid 2013, managed to fall 24%, to $2.5 billion from $3.3 billion last year.

Negotiated issuance plummeted 49.7% last month, to $17.7 billion from $35.2 billion in June 2012. Competitive volume fell 29.5% in June, to $5.1 billion from $7.2 billion one year earlier.

Revenue bond numbers slid to $14 billion from almost $32 billion in June 2102, a 56% dive. General obligation volume, by comparison, dropped to $9.2 billion last month from $11.5 billion in June 2012, a 20% fall.

Fixed-rate volume declined by 47.3% last month, to $21.4 billion from $40.6 billion one year earlier. Over the same span, issuance for variable-rate short put, as well as long put and no put issuance fell 66% and 7%, respectively. Zero-coupon bond volume plunged 59%.

As with the sectors, June issuance for state and local governments fell from one year earlier. Among the largest in the category, state agencies volume decreased 69%, to $5.5 billion from $17.5 billion. Issuance for local authorities tumbled 42% in June, to $5 billion from $8.5 billion in June 2012.

The volume numbers for June are a rates story, said John Dillon, chief municipal bond strategist at Morgan Stanley Wealth Management.

A number of issuers are waiting for conditions to improve after postponing deals.  “With the turmoil we just had, issuers may want to bring them as quick as possible,” Dillon said. “But they may hold off until the week of July 8. And usually around that time, you don’t have as big a calendar as you do in June. So, the week of July 8 may easily be able to accommodate these additional deals that were postponed.”

Among states, issuers in California took its customary pole position with a 18.4% increase in volume through June against the same period in 2012. Golden State borrowers floated $26.6 billion in bonds over the span, versus $22.4 billion one year earlier, when they ranked second.

Texas moved up one spot to No. 2. Municipalities in the Lone Star State issued $15.5 billion through the first half of the year, compared with $16.1 billion in 2012 through June, a 3.6% decline.

New York fell two places to third compared with this time last year on a 40% drop in volume. Through six months, the Empire State issued $15.3 billion, against $25.3 billion over the same span in 2012.

New Jersey vaulted eight spots to fourth place through six months in 2013. Issuers in the Garden State sold $9.3 billion through the first six months of the year, versus $5.3 billion in 2012, a 76% increase.

Illinois rounds out the top five, as issuers in the Land of Lincoln floated 17% less in bonds through the first half of 2013 than over the same period last year, at $7.4 billion against $8.9 billion.

Only two deals crossed the $1 billion mark last month. Illinois sold $1.3 billion of general obligation bonds on June 26.

Posey Co., Ind., Industrial Development followed with $1.26 billion of refunding bonds on June 28. Rutgers State University ranked next with $827 million of new money and refunding GOs on June 14.

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