Municipal bond volume remained in orbit in April, as long-term municipal bond issuance increased 42.1%, the ninth straight monthly gain.
Issuers brought $37.76 billion to market in 1,210 issues, up from $26.58 billion in 939 issues a year earlier, according to Thomson Reuters data.
Municipal issuers have been relentless when it comes to taking advantage of low interest costs while they still have the opportunity, as economists forecast the Federal Reserve may start to raise its benchmark interest rate this year.
"In April the market exceeded the $140 billion mark in year-to-date issuance," said Sean Carney, director and municipal strategist at BlackRock. "This has historically taken place in June; however in 2015 it only took 18 weeks to reach this threshold. Historically, only the years of 2007 and 2010 have seen such a robust trajectory, and both of those years produced greater than $430 billion in gross issuance."
Carney also said that issuance was well distributed across the yield curve, that there was an uptick in advanced refundings and that the increase came without much or any help at all from larger issuers such as Illinois and Puerto Rico so far this year.
"April is further proof that issuance this year will be greater than last year," he said. "We have had four years of net negative issuance and now might transition to net positive issuance, which means that municipal performance is more heavily reliant on the coupon and not on the price."
Refundings were once again a major driver of the higher volume, accounting for almost half of the months' issuance. Refunding transactions more than doubled to $17.91 billion in 546 deals from $8.11 billion in 342 deals in April of 2014.
"The story is still refundings, refundings, refundings," said Tom Kozlik, municipal credit analyst, Janney Capital Markets. "Other than refundings the story is new issuance continues to trail off, which does not surprise me as issuers are still grappling with how to plan around rising expenditure demand and inadequate revenues."
New money transactions declined by 5.6% to $12.68 billion from $13.43 billion, while combined refunding and new money transactions increased 42.5% to $7.17 billion from $5.03 billion in April 2014.
"The decline in new money issuance is somewhat understandable," said Carney. "The question is will new money be able to step in when rates continue to rise and the refundings slow down, or will overall issuance come down? The market needs more new money issuance, and we expect an uptick in new money later in the year."
Kozlik noted that new issuance slipped in the first three months of 2015 from the first quarer of 2014 and April 2015 new money issuance is also lower than in April 2014.
"This tells me that when interest rates rise, and refunding issuance dries up, that primary muni market investment options will be slim," Kozlik said.
Negotiated bond sales increased 62.4% to $28.97 billion from $17.84 billion, competitive deals rose 15.4% to $8.62 billion from $7.47 billion and private placements plunged 87.2% to $162 million from $1.26 billion.
Sales of revenue bonds increased 49.9% to $22.84 billion in 421 deals from $15.24 billion in 306 deals. General obligation bond volume jumped 29.9% to $14.73 billion in 788 issues from $11.34 billion in 633 issues.
Tax-exempt deals were up 42.4% to $33.88 billion, while taxable deals were 24% higher to $3.30 billion.
Fixed-rate issues increased to $36.75 billion in 1,167 issues from $24.85 billion in 891 issues the previous year.
"We are also seeing that the use of bond insurance is up, confirming our view that investors see value in bond insurance," said Kozlik.
The volume of deals with bond insurance more than doubled in par amount wrapped to $2.54 billion in 161 deals from $1.06 billion in 104 transactions.
Volume increased in six out of 10 market sectors: Electric power more than quadrupled to $3.32 billion from $726 million; utilities improved by 87.4% to $3.60 billion from $1.92 billion; education jumped 42.7% to $13.73 billion from $9.61 billion; health care gained 54.5% to $3.62 billion from $2.34 billion and general purpose deal volume rose by 34.4% to $8.21 billion from $6.11 billion the year before.
Cities and towns saw a 64.5% boost to $4.68 billion from $2.85 billion, districts saw an increase of 70.7% to $8.48 billion from $4.97 billion, counties and parishes saw an increase to $2.57 billion from $1.15 billion and state agencies increased by 47.2% to $10.59 billion from $7.19 billion.
The top five state issuers so far this year are California, Texas, New York, Pennsylvania and Florida - the same order there were at the end of last month.
California claimed the top spot among states with $21.47 billion of issuance thus far in 2015, up from its No. 2 ranking in the same period of last year with $12.03 billion. Texas dropped from first to second with $17.85 billion, an increase from $12.31 billion the year before. New York remained in third place with $11.91 billion so far this year, up from $10.29 billion year to date. Pennsylvania jumped from seventh to fourth after increasing issuance to $7.80 billion from $3.28 billion a year earlier. Florida remained in the fifth spot with $6.39 billion, up from $4.25 billion.
Issuance plunged for the week of April 27, but Carney doesn't expect to see that continue for very long.
"The dip in issuance will in short order return back to numbers that will lead on a path back to greater than $400 billion in total issuance for the year," he said.