August issuance posts one of the highest monthly volume totals of 2018
Monthly new-issue volume surpassed the $30 billion mark for the fourth time this year in August, helping keep third-quarter issuance close to last year's pace and potentially setting the stage for a more robust season of issuance in the Fall.
Despite the mark, August 2018 volume dipped year-over-year to $32.6 billion from $37.5 billion in 2017, according to Thomson Reuters data. Issuers completed 704 transactions, off from 1,080 in August 2017.
“Even though it did seem slower than what it actually was, there were two factors that helped volume this past month,” said Dan Heckman, senior fixed-income strategist at U.S. Bank Wealth Management. “I think the dip down in rates, especially on the long end, and I also think there was a little bit of issuers trying to get out ahead of the looming hike in Fed fund rates come September.”
After eight months, yearly muni volume stands at $224.6 billion, well short of the $263.5 billion mark in 2017 through August. Volume so far for the third quarter, though, sits at $59.6 billion, only 4.6% off of the $62.5 billion of long-term issuance the market saw in the third quarter of 2017.
Heckman added that the muni market continues to repeat the same old song in terms of the supply/demand imbalance and, despite hearing rumors of issuance picking up, doesn’t see that changing anytime soon.
“I don’t see us realistically getting a true surge in supply until 2019,” he said. “We have had some money come in through coupons, redemptions and maturities but that will slow down here soon.”
Alan Schankel, managing director and municipal strategist at Janney, also said he does not anticipate the volume pace increasing significantly in the final months of 2018.
“The last year or two, our market has been severely impacted by the election and related political turmoil but I don’t see anything like that happening this year,” said Schankel. “Leaving any federal infrastructure initiative on the back burner, at least until well into 2019.”
New-money issuance in August increased 16.4% to $19.45 billion in 593 deals, from $16.71 billion in 609 deals a year earlier.
Refunding volume fell to $10.1 billion in 107 deals, from $14.1 billion in 376 deals a year earlier.
“We should see more refundings later this year and into next year as a growing number of issues that could not be advance refunded, due to the tax law change, become viable current refunding candidates,” said Schankel.
Combined new-money and refunding issuance dropped 56.1% to $2.97 billion, while issuance of revenue bonds declined 15.7% to $19.13 billion and general obligation bond sales fell to $13.42 billion from $14.83 billion.
Negotiated deal volume was up to $26.99 billion and competitive sales decreased by 43.2% to $5.26 billion.
Taxable bond volume increased to $3.29 billion from $1.48 billion, while tax-exempt issuance fell by 22.5% to $26.11 billion. Minimum tax bond issuance rose to $3.16 billion from $2.38 billion.
“Despite the increase in August compared to last year, the pace of taxable issuance is slower on a year-to-date basis,” said Schankel. “That may change if Chicago chooses to go ahead with its potential pension obligation bond issuance.”
Heckman added that he thinks the spike of AMT issuance this past month was caused by changes in tax laws.
“What it comes down to is the yields [on these deals] were high enough to more than compensate for whatever tax hits may come later,” he said.
Deals wrapped by bond insurance dropped 34.5% to $1.41 billion in 99 deals from $2.16 billion over 164 transactions the same time the prior year.
Only two of the 10 sectors showed year-over-year increases, as public facilities gained to $2.15 billion from $838 million and environmental facilities crawled up to $251 million from $195 million. All other sectors decreased by at least 1.5%, with the development showing the biggest downfall to $384 million from $1.06 billion.
Just two types of issuers were in the green. Deals from direct issuers increased to $517 million from $133 million and cities and towns rose to $7.45 billion from $5.26 billion. All other issuers saw a decreased of at least 7.9%, with local authorities leading the way falling down to $3.59 billion from $6.94 billion.
California continues to have the most issuance among states so far in 2018. The Golden State has issued $32.89 billion; New York is second with $28.55 billion; Texas is third with $23.43 billion; Pennsylvania is next with $10.87 billion; and New Jersey rounds out the top five with $7.22 billion.