Sell Side

September Issuance, Down 26%, Worst for the Month Since 2001

September long-term municipal bond volume fell to its lowest since 2001, when terrorist attacks on the World Trade Center and the Pentagon closed the markets for four days.

Long-Term Bond Sales: January-September

Muni issuers floated $19.4 billion in 647 deals in the month, or 26% less than they did in September 2012, when they sold $26.4 billion in 837 deals, numbers by Thomson Reuters showed.

It was the lightest issuance in any month since January 2012, when municipalities sold $17.5 billion. In September 2001, $14.3 billion reached the market.

For the year to date, volume has fallen 12% to $248.8 billion in 8,701 deals. That compares with $283.9 billion in 9,842 issues through three quarters in 2012.

Issuers have been discouraged from coming to market as interest rates soared after the Federal Reserve said in June that it may taper its program of bond purchases and Detroit in July filed the biggest municipal bankruptcy in U.S. history.

“You had historic outflows, a pretty dramatic spike in rates and you had a loss of liquidity,” said Roberto Roffo, senior vice president and portfolio manager at Advisors Asset Management. “It wasn’t the best time to issue bonds in the muni market, so it’s not shocking we were down significantly in issuance.”

Since May 29, $27.6 billion has fled weekly reporting muni bond funds, Lipper FMI numbers showed.

The 10-year triple-A yield fell 50 basis points since it peaked for the year at 3.04% on Sept. 5. It had risen from a low of 1.66% at the start of May, or 138 basis points, to its high for 2013, Municipal Market Data numbers show.

Although September typically is associated with back-to-school and back-to-business themes, it’s not one of the stronger months of the year for issuance historically, said John Dillon, chief municipal bond strategist at Morgan Stanley Wealth Management. “In that sense, September’s year-over-year decline mirrors what we saw in August,” he said, “although a little less severe in magnitude.”

The decline in refunding issuance continued to play a powerful role in the month’s numbers. Refis volume fell 59% last month to $3.8 billion from $9.2 billion in September 2012. For the first three quarters of the year, refunding volume has decreased 30%, to $85.7 billion from $122.5 billion.

New-money issuance, by comparison, jumped 21% in September to $10.6 billion, against $8.7 billion one year earlier. For the year to date, new-money volume has climbed 7%, to $112.1 billion from $104.8 billion. “Obviously the big culprit was refis, again — as it has been,” Dillon said. “The no-taper rally came maybe a little too late to get some of those marginal ones back on the calendar.”

New-money numbers, though, show issuers who may have been on the sidelines during the period of austerity and are now looking to get back into the market before rates climb, he added.

Among the largest issuing sectors, education stood apart as the only one that recorded an increase in volume last month. Issuance in the sector rose 31% in September to $6.8 billion from $5.2 billion.

Health, transportation and general purpose volume fell 30%, 41% and 39%, respectively, in September from a year earlier. Tax-exempt volume dropped 18% in September, to about $17 billion from $20.7 billion. Taxable issuance fell 50% over the same period, to $2.0 billion versus $4.1 billion. Negotiated volume dropped by 36% last month to $13.6 billion from $21.0 billion in September 2012. Competitive sales rose 9% in September, to $4.8 billion against $4.4 billion a year earlier.

Revenue issuance plunged 24% last month to $13.3 billion from $17.5 billion in September 2012. General obligation volume plummeted by 31% over the same period, to $6.1 billion from $8.9 billion.

Fixed-rate volume declined 31% for the month. But while variable-rate short put issuance fell 12% in September, variable-rate long- or no-put deals surged 338%.

Zero-coupon issuance slipped 7% last month against one year earlier. Linked-rate volume rose 11% over the same period.

All major state and local government issuers save local authorities and colleges and universities saw declines in volume for September against one year earlier. State agencies cascaded 43% to $5.4 billion from $9.5 billion. Volume for cities and towns in September dropped 13%, while districts tumbled 29%.

Issuance from state governments collapsed 78% last month, to $762 million from $3.4 billion one year earlier. “That’s interesting; that a significant drop,” Roffo said. “We’ve seen a lot of states with revenues that have come in higher than expected.” Colleges and universities issued $2.7 billion in bonds last month. Through the same period one year earlier they sold $479 million, a 456% jump.

California led all states issuance, up one place from a year earlier. The Golden State recorded an 11% increase last month, on $37.6 billion, compared with $33.7 billion in September 2012.

Texas moved up one rank to second with a 3% jump in issuance from last year. The Lone Star State sold $27.5 billion, versus $26.8 billion in September 2012.

New York slipped two spots to third last month on 37% less in volume. The Empire State recorded $23.4 billion in issuance in September, against the $37.5 billion it issued one year earlier.

Florida reported 14% less in volume in September than it did one year earlier. But the Sunshine State sold enough to move up one spot to fourth place on $11.2 billion, against $13.0 billion in September 2012.

New Jersey jumped five places from a year earlier to rank fifth for issuance in September. The Garden State floated $11.1 billion, up from $8.2 billion in September 2012. Just one deal beat $1 billion last month. The University of California sold $1.86 billion in new money and refunding, taxable and tax-exempts on Sept. 26.

New York City had the next biggest deal with about $842 million of new money and refunding, taxable and tax-exempt GOs that priced on Sept. 25 in both the negotiated and competitive markets.




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