Municipal bond sales fell again in April, mired in a weakening economy.
Sales in April totaled $23.02 billion in 796 issues, a $4.61 billion drop from March, according to preliminary data from Thomson Reuters. Volume was 34.5% lower than April 2013's sales, which totaled $35.14 billion in 1,147 issues.
"New projects do not seem to be robust due to the slowing economic backdrop," Michael Pietronico, chief executive officer at Miller Tabak Asset Management, said. "The GDP coming out today showed that it was only 0.1% higher. Municipalities don't seem that engaged in wanted to start new projects."
The advance gross domestic product number announced on Wednesday showed growth slowed to 0.1% in the first quarter from the 2.6% pace in the fourth quarter of 2013. Growth fell short of the market consensus of about 1.1%.
"It's politically unpopular to finance things," Matt Fabian, managing director at Municipal Market Advisors, said in an interview. "At some point states are required to raise revenues to pay the debt off."
Most of the decline from March's volume reflected the $3.5 billion Puerto Rico general obligation bond issuance that came to market on March 12. Pietronico said that the Commonwealth's GO did elevate March's levels and described it as a "one-off."
The preliminary figures for April don't reflect sales on the last day of the month.
General obligation bond issuance fell by 22.4% to $11.52 billion from 555 issuances this April from $14.86 billion from almost 200 more issuances for the same month in 2013. The amount of revenue bonds released decreased by 43.3% to $11.5 billion from $20.28 billion last year.
New-money issuance was down, though it fell off by only 17.6% for April after dropping by 31% in March from 2013's levels for the two months. New-money totaled $12.74 billion from 457 issuances in April.
"Municipalities are trying to get debt down to levels they think are appropriate, and the slowing economy is not doing a lot to generate animal spirits in terms of new products," Pietronico said.
Refunding sales came in less than half of what they were in April 2013, declining by 55.2% to $5.81 billion in268 issuances after reaching $12.98 billion in 553 issuances in February.
"Issuance is also down because refunding deals have been slower than expected due to the interest rate environment," Pietronico said.
He does not see refunding deals or issuance in general picking up anytime soon.
"From our perspective we expect it to be on the light side this year," he said.
"You have fewer refunding targets now," Fabian said. "The kinds of bonds that have been refunded lately have been done through current refundings, not advanced refundings."
Fabian says that there are very few advanced refundings because the yield curve has been so steep this year.
"Advanced refundings do not work as well when the yield curve is steep," he said.
In terms of current refundings, there are fewer of those because there has been low issuance in 2014, Fabian said.
Pietronico also does not foresee any changes in the Federal Reserve's interest rate policy effecting issuance in 2014.
Issuance fell across all the sectors, weakening the most for environmental facilities and development, which came in 94.9% and 58.2% lower than their 2013 levels, respectively. Environmental facilities sales fell to $29.1 million in one deal from $567.7 million in 10 sales in the same month last year. Development issues for April totaled more at $1.04 billion from 17 deals, compared compared with $2.52 billion from 16 issuances in 2013.
Healthcare has dropped by 73.5% to $977.6 billion from 21 issuances from the $3.69 billion it had reached in 2013.
"A lot of issuance has been in healthcare in the last year or two," Fabian said. "Its been hospitals merging and now there are fewer hospital mergers; its dried up issuance."
Direct issuers and colleges and universities were the only types of issuers to experience gains in April, with direct issuers' growing by 345.4% with two issues for the month amounting to $634.3 million. Direct issuers in April 2013 only accounted for $142.4 million, even though there were nine issues.
The number of issues from colleges and universities that came to market declined by four, but the 25 issuances in April 2014 reached $1.9 billion, up from $709.9 million a year earlier.
The biggest state issuers, New York and California, both issued less than their 2013 levels, though New York dropped by less than California. New York's issuance decreased by 2.6% to $10.27 billion in three deals from $10.54 in three deals in April 2013.
California's volume dropped by 43.1% to $11.3 billion from $19.9 billion in April 2013. The state had sold $19.9 billion last year in a single issue. It had two issues in April this year.
Idaho showed the biggest jump in volume, as issuance increased by 337.3%, with 38 deals totaling $354.2 million.
"Its such a small state that anytime it issues debt, it is going to skew the numbers higher because it does not issue that much," Pietronico said. "You won't see that kind of change in California or New York, which are much greater issuers."
