Muni Volume Dips in March

Municipal bond issuance tumbled for a second straight month on far fewer deals for less money.

Monthly Statistics

Long-term muni volume fell 12% in March against the same period one year earlier, Thomson Reuters numbers showed. Municipalities issued $30.4 billion in 897 deals last month, compared with $34.7 billion in 1,256 issues in 2012.

As with February, most sectors of the muni marketplace saw declines. New-money and taxable issuance stood out as exceptions. But last year’s refundings craze has clearly not carried over into 2013, despite the continuation of historically low interest rates.

For the first quarter, long-term muni bond issuance rose by 2%, to $81.0 billion in 2,768 deals against $79.1 billion in 3,030 issues through the same period in 2012.

The drop-off in volume isn’t a huge surprise to Dan Heckman, senior fixed income strategist in the private client reserve of U.S. Bank. The market has entered a period that is historically weak for issuance during March and April, he said.

“We’re entering a seasonally weak period for the muni market due to many retail owners of munis buying short-term munis for tax payments,” Heckman said. “And especially late March-early April is seasonally weak as investors make those payments and consequently demand wanes a little bit; there’s a little bit of a carry-over effect.”

Refunding issuance, the biggest volume story for 2012, has started to fade. Refundings dropped 18% in March, to $12.7 billion in 443 deals from $15.5 billion in 741 issues one year earlier. For the year to date, they’re down 7%, to $34.6 billion from $37.1 billion in 1Q 2012.

New money issuance, by contrast, is up for both March and 2013, compared to the same periods in 2012. New money deals for the month have climbed 36%, to almost $14 billion from $10.2 billion in March 2012. For the year to date, they’re up 20%, to $31.8 billion from $26.5 billion in 1Q 2012.

Interest rates may be a factor in the new money-refunding numbers, said Tom Dalpiaz, senior vice president and portfolio manager at Advisors Asset Management. Rates have risen from their lows in November and December last year, he said, which may account for the fewer refundings.

“Plus, to some degree, things that can be refunded have been refunded,” Dalpiaz added. “So, maybe the volume has slowed down for that reason. And because new money issuance was pretty light relative to other kinds of issuance last year, maybe some issuers finally have decided to do some projects.”

Refundings weren’t the only munis to see less volume in March, as most segments of the market shared their fate. Among the largest sectors, issuance was mixed. Education and transportation volume both increased, by 6% and 26%, respectively. But issuance in utilities and general purpose both decreased, by 44% and 36%, respectively.

Tax-exempt issuance slipped 23% last month, to $24.8 billion from $32.4 billion in March 2012. Taxable issuance, on the other hand, hurdled 140% in March, to $4.2 billion from $1.8 billion one year earlier. For the year to date, taxable issuance is up 90% from 1Q 2012.

Negotiated issuance was 15% lower last month from March 2012. Competitive deals, though, were up 3% over the same period.

Revenue issuance climbed 16% in March, to $17.7 billion from $15.3 billion during the same period in 2012. General obligation volume, however, fell 34% last month, to $12.7 billion from $19.4 billion in March 2012.

While fixed-rate issuance stumbled 12% last month, variable-rate volume of all types fell between 19% to 49% over the same period in 2012.

Among the largest state and local government issuers, only local authorities floated more debt in March than they did the same month in 2012. Local authorities’ issuance rose 13%, to $5.3 billion from $4.7 billion one year earlier. State governments, the largest issuer in the sector in March 2012, saw its volume drop last month by 27%, to $5.5 billion from $7.5 billion.

A few newcomers crashed the party at the top of state issuance numbers. Issuers in California led the dance, as they did through the same period in 2012, with $12.7 billion in 192 deals, a 27% increase. That compares with just under $10.0 billion in 164 deals through 1Q in 2012.

But for all of the floatations by issuers in the Golden State, deals required weakening yields by as much as 30 basis points to get done, U.S. Bank’s Heckman said.

“From our perspective, the market got ahead of itself on California spreads,” he said. “The fact that they still have some structural issues that they need to address on a longer term basis, market participants decided to take a pass initially.”

New York issuers took second again, increasing just 7% on $9.2 billion in 164 deals, against $8.6 billion in 213 issues over the same period in 2012. Texas volume fell 19%, but it was enough to hold third place once again, on $6.2 billion in 322 issues year to date, versus $7.8 billion in 309 deals over the same period in 2012.

Issuers in New Jersey, Ohio and North Carolina vaulted to fill the next three spots. New Jersey’s volume rocketed 337% over the quarter to almost $5.0 billion in issues from $1.1 billion through the first quarter of 2012, a move from 21st place.

Ohio skipped up to fifth place from ninth this past quarter on a 91% increase in issuance, to $4.2 billion in deals from $2.2 billion one year earlier. North Carolina jumped to sixth place from 17th on $3.2 billion in issuance from $1.4 billion, a 127% increase.

Four issues weighed in above $1 billion in March. California led the charge with $2.47 billion in multi-purpose GOs on March 14 that included paper that was both new money and refundings, as well as taxable and tax-exempt.

The University of California followed with roughly $1.6 billion of taxable and tax-exempt refunding bonds on March 5. The New Jersey Turnpike Authority issued $1.4 billion in debt on March 20. New York City issued $1.05 billion in new money and refunding GOs on March 1.




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