Sell Side

February Muni Bond Volume Tumbles 22%

Long-term municipal bond issuance hit the brakes in February.

Monthly Data

Muni issuers floated 22% less in volume last month than they did over the same period in 2012, Thomson Reuters numbers showed. That broke down to $21.1 billion in 894 deals, compared with just under $27 billion in 1,051 issues.

Volume numbers fell across most segments of the marketplace. The decline included a surprise stalwart: refundings, which despite the perpetuation of the low-rate environment saw issuance drop 35% last month over the same span one year earlier.

For the year to date, issuance has risen 7% versus the first two months of 2012. Municipalities have issued $47.6 billion in 1,769 deals so far this year, against $44.4 billion in 1,774 deals through February 2012.

Broadly speaking, lower February volume led to a quieter month in the market for trading, according to Priscilla Hancock, a managing director and municipal strategist at JPMorgan Asset Management.

Last month there wasn’t enough issuance to generate active secondary market trading, she said, where participants buy bonds and flip them. Instead, the bulk of new issues was placed directly with buyers.

“The supply over the last month was manageable,” Hancock said. “So we saw a lot less activity in the market.”

Similarly, fewer refundings led to a quieter month in the market for issuance. Just $8.8 billion in refundings reached the market last month in 428 deals. That’s down from $13.6 billion in 606 issues in February last year.

New-money deals, by comparison, fell just 7% last month, to $8.9 billion in 390 issues, against $9.5 billion in 370 issues a year ago.

Considering interest-rate levels, the numbers surprised some in the market, such as James Colby, a portfolio manager and senior municipal strategist at Van Eck Global.

As yields remain low, he said, political entities might be expected to refund their debt wherever possible.

“Why wait, if it’s producing cost savings and can get done reasonably efficiently,” Colby asked. “Do your refundings; get those deals off the books and save taxpayers money prior to the end of the fiscal year.”

Market sectors saw mixed numbers in February. The largest among them — such as education, utilities and general purpose — issued less volume last month than they did in 2012. Such mid-sized sectors as electric power, health care and housing floated more.

Issuance for education fell 27%, utilities 34% and general purpose 21% last month against February 2012 numbers. Alternatively, electric power volume rose 63%, health care 107%, and housing 124% over the same period.

Environmental facilities saw a Paul Bunyan-esque 3,657% jolt in issuance last month over the same period one year earlier, to $316 million from $8.4 million.

The market saw a 23% decline in tax-exempt issuance in February, to $18.5 billion in 797 deals, compared with $23.9 billion in 979 issues a year earlier. Taxable volume, alternatively, fell by 12% last month versus one year earlier, to $2.3 billion in 91 issues against $2.6 billion in 64 deals in February 2012.

Negotiated volume fell 35% last month against the same period one year earlier to $14.2 billion from just under $22 billion last year.

By comparison, competitive issuance jumped 40% in February 2012 to $6.5 billion against $4.7 billion in February 2012.

Both revenue and general obligation issuance decreased last month against the same period in 2012. Revenue bond issuance sank 28% to $11.1 billion, against $15.3 billion in February 2012. GO volume dropped 14% last month to $10.0 billion from $11.6 billion one year earlier.

The variable-rate market offered some variation in February’s numbers year over year: while variable-rate short put issuance fell 75% over the period to $166 million, variable-rate long- or no-put volume skyrocketed a cartoonish 1,277% to $708 million. Zero-coupon bonds and linked-rate volume climbed considerably last month over that of February 2012.

Issuers floated 60% more in zeroes for February than they did a year earlier, to $122 million from $76 million. Likewise, they issued a whopping 993% more in linked-rate volume last month against February 2012, to $875 million from just $80 million.

The state and local government sector generated mixed volume numbers last month. The sector’s largest issuers, state agencies and districts, saw declines over the period of 40% and 24%, respectively. But such mid-sized issuers in the sector, such as state governments, counties and parishes, saw jumps of 56% and 24%, respectively, last month over the same stretch in 2012.

Among the states, issuers in California led the way through the first two months of the year, just as they did in 2012. The Golden State accounted for $6.3 billion in 114 deals over the span, compared with $4.7 billion in 108 issues through February 2012, a 33% increase.

New York municipalities placed second through February on just under $3.9 billion in 89 issues. That compared with slightly more than $3.9 billion in 101 deals through the first two months of 2012, or 1% less.

New York switched places with Texas, which ranked third through February 2013 on $3.8 billion in 221 deals, a 16% decline from one year earlier. Over the same span in 2012, the Lone Star State ranked second on $4.6 billion in 179 issues.

In something of a surprise, issuers in Ohio and New Jersey rounded out the top five. Those in the Buckeye State have seen volume rocket 156% to $3.1 billion in 74 deals for the first two months of the year, compared with the same time period in 2012.

The Garden State saw issuance jump to $2.8 billion in 41 deals, or a 282% increase, through February 2013, versus the same span in 2012. The two states leapt from 11th place and 18th place, respectively.

No deals crossed the $1 billion line last month, according to the numbers. Large deals, though, from the Regents of the University of California, at $1.3 billion on Feb. 28, and New York City, at $838.4 million one day earlier, somehow failed to make the list in time.

Consequently, a competitive deal on Feb. 20, for $701.9 million of North Carolina refunding GO bonds stood as the month’s largest deal.

The Kentucky Higher Education Student Loan Corp. landed in second place when it issued with $563.8 million of taxable bonds six days earlier.




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