Municipal monthly volume continues to see-saw. Coming off the biggest month of the year in June, volume dipped and July finishes as the second lowest month for issuance in 2019.
The month of July ends with $25.13 billion of municipal bonds sold in 755 transactions, down 10.3% from $28 billion in 723 issues in July 2018, according to data from Refinitiv.
We are now into the eighth month of the year and we have only had month exceed the $30 billion plateau mark. Last year we saw five months reach that total and the year before that it was 9 months.
Alan Schankel, managing director of research at Janney said that August volume may end up topping $30 billion, since several larger issues were pushed from July to August because of the July 31 FOMC meeting.
However, Wesly Pate, portfolio manager at Income Research + Management said as a new fiscal year begins, the lack of increased issuance in June is a good tell as to what the market will see for the rest of the year.
“That being said, I don't think we will see a month going forward with greater than $30 billion in volume. Supply and demand drive where the market is heading," Pate said. "Volume has been, and will continue to be, the status quo with a lack of increase in supply and no near-term volatility."
Refunding volume for the month fell 22.6% to $3.87 billion in 145 deals from $5 billion in 116 deals a year earlier. New-money volume dropped 2.2% to $19.11 billion. Combined new-money and refunding issuance was 37.9% lower from July 2018 to $2.15 billion.
"New money accounts for 75% of issuance, infrastructure needs will be what drives incremental issuance going forward,” Pate said. “We haven't seen an uptick in ballot approval for bonds, so yearly volume will stay in the $325-$340 range."
Issuance of revenue bonds fell 23.5% to $15 billion and general obligation bond sales increased 20.8% to $10.13 billion.
Negotiated deal volume lost 5.3% to $18.55 billion, while competitive sales decreased 7.1% to $6.50 billion.
Taxable bond volume declined 13.1% to $2.23 billion, while tax-exempt issuance declined 13.1% to $21.49 billion. Issuance of bonds with interest subject to the Alternative Minimum was higher to $1.41 billion.
Variable-rate short put debt sank 34.1% to $492 million from $759 million and variable-rate long/no puts decreased 44.2% to $744 million.
Deals wrapped by bond insurance for the month was down just a tick to $1.39 billion in 126 deals from $1.40 billion in 97 transactions the same month last year.
Only two sectors gained from year-earlier levels, while issuance by the rest of the sectors declined at least 4.6%. Electric power muni deals were way up to $1.27 billion from $255 million and housing deals grew 29.3% to $1.74 billion from $1.34 billion.
Five types of issuers increased volume in July, while the rest suffered decreases of at least 31%. Issuance from colleges and universities rose 46.7% to $1.62 billion from $1.10 billion and districts were up 27.2% to $5.54 billion from $4.37 billion.
“It is notable that borrowing by state governments and agencies dropped significantly compared to last July, which is consistent with the recent narrative of states’ infrastructure investment slowing as a percent of GDP,” Schankel said.
California continued to lead all states in terms of muni bond issuance. Issuers in the Golden State have sold $29.69 billion of municipal bonds so far this year; Texas moved up one spot second with $20.74 billion; New York dropped down to third $20.14 billion; Florida was next with $10.37 billion; and Pennsylvania rounded out the top five with $9.09 billion.
Massachusetts was next with $5.15 billion, followed by Michigan with $5.62 billion, Ohio with $5.24 billion, then Illinois with $5.14 billion and finishing the top ten is Wisconsin with $4.59 billion.
While issuance isn’t expected to start soaring, there is potential to get some more volume in the market going forward, according to Pate.
"Build America Bonds is one area where you could see an uptick in refunding - over the next 12-24 months, there could be as much as $15-20 billion of additional volume."
