Sell Side

Taxable, New Money Deals Climb in April Amid Slip in Overall Issuance

Long-term municipal bond issuance slipped for the month of April, yet still clings to a small increase for the year thanks to a jump in new money and taxable deals.

Monthly Data

Muni volume weighed in at $34.1 billion in 1,084 issues last month, a 1.4% decline. That compared with $34.6 billion in 1,222 deals in April 2012, Thomson Reuters numbers show.

Though the market technically was down in April, industry pros said it was still a heavy month for volume compared with issuance numbers back to 2000. For the year through April, a shade under $117 billion has been issued in 3,943 deals, against $113.7 billion in 4,252 issues through the first four months of 2012.

New money represented 45% of the total volume in the month, against 39% of issuance one year earlier. The jump signals an improvment in municipal coffers, said John Dillon, chief municipal bond strategist at Morgan Stanley Wealth Management.

“As state and local revenues continue to increase, and austerity begins to fade, new money deals should begin to contribute more meaningfully to overall supply,” he said.

A total of  $15.3 billion in new money came to market in 478 issues last month, a 14% jump from one year earlier, when $13.4 billion was sold in 476 issues. There were $12.6 billion in refundings in 509 issues, against $13.0 billion in 638, or a 4% drop.

Through the first four months of 2013, new money issuance has risen 15%. Refunding volume, the motor of issuance in 2012, has dipped 3%.

The increase in taxable volume, which climbed 310% last month from the same period in 2012, also caught the market’s attention. There was $6.2 billion in taxable volume in 151 deals in April, against $1.5 billion in 94 issues during the same period in 2012.

There was more taxable issuance because corporate spreads have tightened so dramatically, particularly on the shorter end of the curve, or between five and 10 years, said Dominic Nori, chief executive officer at Private Wealth Management, an independent wealth management firm based in Florida.

“You’re looking at municipals yielding 100-to-120 basis points over Treasuries in that time period, versus corporates at 50-to-60 basis points in similarly rated bonds,” Nori said. Some issuers “came out with taxable bonds, because that’s where the demand is right now. And municipalities are able to borrow very cheaply for that part of the market.”

What’s more, Dillon added, low absolute rates and muni yields’ near parity with those of Treasuries supported the uptick in taxable issuance. The two factors gave issuers more opportunities for advance refunding a second time using taxable debt.

“That’s an interesting development,” he said, “because the more taxable issuance you have, the easier it is for the market to digest the tax-exempt portion.”

That tax-exempt portion included $27.3 billion in 926 issues last month, a 13% decline. One year earlier, $31.4 billion in 1,118 reached the market.

For the year to date, tax-exempt volume has fallen 7%. Taxable issuance, by comparison, has increased 136%.

Among the largest-issuing sectors, volume has mostly increased in April from a year earlier. Transportation issuance climbed 33% last month, to $5.6 billion from $4.2 billion in April 2012.

General purpose volume rose 8% in April, to just under $10 billion from $9.3 billion a year earlier. Education issuance, though, increased just 1% last month, to $8.1 billion from $8 billion in April 2012.

Negotiated issuance in April stood mostly flat, slipping to $26 billion last month from $26.1 billion over the same period in 2012. Competitive volume dipped 1% in April, to $7.7 billion from $7.8 billion one year earlier.

Revenue volume stumbled 9% last month. General obligation issuance, by comparison, jumped 12% in April against the same period one year earlier.

And while fixed-rate volume ticked up 2% last month over the equivalent period in 2012, variable-rate issuance was mixed April-to-April. Short put variable-rate volume plunged 77%, but long-put or no-put variable-rate issuance vaulted 134% over the same period.

The largest state and local government issuers also showed mixed results for April volume. State agencies saw a 15% decline in issuance last month against one month earlier. Districts, though, issued 30% more over the same period.

Volume for local authorities ticked up 2% in April against the same month in 2012. Cities and towns issued 36% less last month than they did in April 2012.

State governments issued 26% more in April than they did a year earlier, at $5.3 billion in 12 deals against $4.2 billion in 30 issues in April 2012.

California issuers led all states through April, as they had in 2012. Issuers in the Golden State floated $19.4 billion in 272 deals. That’s an increase of 27% over the same period in 2012, when the state issued $15.2 billion in 224 issues.

Texas leapfrogged New York into second place with a 6% increase in issuance year to date. Issuers in the Lone Star State have sold $10.7 billion in 484 deals, compared with $10.1 billion through the same period in 2012.

New York fell to third place on $9.9 billion of issuance in 216 deals through April, a 23% decline. The Empire State issued $12.9 billion in 307 deals through the same period last year.

Issuers in New Jersey leapt to fourth place from 10th place on a 110% increase year to date from last year’s equivalent numbers. Garden State issuers floated $7.1 billion in 106 deals through April, compared with $3.4 billion in 131 issues over the same period one year earlier.

Florida issuers rounded out the top five, as they did through the first four months of 2012. The Sunshine State saw $6.0 billion in 79 issues year to date, compared with $4.6 billion in 66 deals through April 2012, a 32% increase.

Two issues crossed the $1 billion mark for the month of April at press time. The Iowa Finance Authority would have made it three; on Tuesday, it issued $1.2 billion in bonds that didn’t make it into the Thomson Reuters numbers for April.

California led as it issued $2.63 billion in new money and refunding GOs on April 11. The Florida Hurricane Catastrophe Finance Corp. floated $2 billion of taxable miscellaneous purpose bonds one day earlier.




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