Muni issuance may fall 3% to 7% this year due to coronavirus pandemic, S&P says

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As the human toll and financial fallout from the COVID-19 spreads across U.S. states, counties and cities, S&P Global Ratings Research expects municipal bond issuance to shrink considerably this year.

“At this time, we expect issuance [in the public finance sector] to contract between 3% and 7%. We see depressed issuance among the long-term debt we track to continue as we have seen in March and so far in April, at least through the near-term,” S&P said in a report released Friday. “That situation could change if relief passes through Congress, or a major change in the trajectory of the COVID-19 outbreak occurs.”

S&P cautioned that its 2020 supply forecast was volatile because “so much depends on how quickly economic activity resumes and where, as well as what aid is made available to state and local governments by the Fed or by Congress.”

The agency added, a wild-card could be thrown into the mix — alternative funding sources in the current environment.

“This includes direct bank loans and the possibility for the Fed's Municipal Liquidity Facility's short-term financing options to take the place of the long-term bond debt we track,” S&P said. “However, at this time, we do not believe any issuers have used this funding route.”

According to data released Thursday, April saw $23.8 billion of muni issuance. This was down 15% from the $27.9 billion issued in April of last year. It was also the lowest muni volume total for the month of April since 2011.

In the first four months of the year, issuance totaled $116.6 billion, up from $107.3 billion in the same period last year.

S&P added that global bond issuance could be down 9% from 2019. S&P economists expect the world economy will contract by 2.4% this year.

The global recession is likely to be especially deep in the near term, S&P said, but the recovery will likely begin in the third quarter of this year.


ISM manufacturing index falls in April
Economic activity in the manufacturing sector shrank in April, according to the Institute for Supply Management‘s manufacturing report.

The PMI fell to 41.5% in April from 49.1% in March. Economists surveyed by IFR Markets had expected a reading of 36.7%.

“The PMI indicates a level of manufacturing-sector contraction not seen since April 2009, with a strongly negative trajectory,” said Timothy Fiore, chair of the ISM manufacturing business survey committee.

The new orders index dropped to 27.1% in April from 42.2% in March; the production index declined to 27.5% from 47.7%; and the backlog of orders index decreased to 37.8% from 45.9%.

The employment index fell 16.3 percentage points to 27.5% in April from 43.8% in March.

“Comments from the panel were strongly negative (three negative comments for every one positive comment) regarding the near-term outlook, with sentiment clearly impacted by the coronavirus (COVID-19) pandemic and continuing energy market recession,” said Fiore.

Comments from survey respondents included:

“Production stopped, other than to make hand sanitizer for those in need,” said a respondent in the chemical products sector.

“Our refinery is losing money making gasoline due to the falling demand,” said a respondent in the petroleum and coal products sector.

“We supply the construction industry in various ways, where the slowdown has been a bit slower than most industries. It is, however; beginning to impact our business, and we see more challenges on the horizon,” said a respondent in the fabricated metal products sector.

“COVID-19 has destroyed our market and our company. Without a full recovery very soon, and some assistance, I fear for our ability to continue operations,” said a respondent in the non-metallic mineral products sector.

Construction spending rises in March
Construction spending rose 0.9% in March, the Commerce Department reported Friday.

Economists polled by IFR Markets had expected construction spending to have fallen by 3.5% in March.

The March figure is 4.7% higher than in March of last year.

In the first three months of this year, construction spending was up 6.7% to $297.0 billion from the $278.5 billion in the same period in 2019.

In March, the estimated seasonally adjusted annual rate of public construction spending rose 1.7% to $348.0 billion from $342.6 billion in February. Educational construction fell 0.3% to $80.9 billion from $81.1 billion in February while highway construction rose 4.6% to $108.3 billion from $103.5 billion in February.

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