Muni volume stalls in September

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Municipal bond volume was slow in September, falling 33.9% from the year-ago mark.

Data from Thomson Reuters shows September volume dropped to $26.70 billion in 723 transactions from $40.40 billion in 1,133 deals in September 2016. Through the first three quarters of the year volume stands at $285.72 billion in 8,205 deals, much lower than the $343.26 billion in 10,430 transactions the market saw at the same point a year ago.
“Volume is developing at the pace I expected,” said Tom Kozlik, managing director and municipal strategist at PNC. “I forecasted $365 billion and it looks we should be near that mark, if not a little under.”

While there is a need and desire for more infrastructure, Kozlik said, public funds and political will to finance projects are scare. Investment for items like infrastructure is being crowded out by required spending items like pensions.

Dawn Mangerson, senior portfolio manager at McDonnell Investment Management, said that for the most part the month played out as anticipated with the typical summer doldrums.

“At this point, Issuers are just waiting for something to happen one way or another with events hanging over the market, such as healthcare ACA, tax reform and transportation/infrastructure,” she said.

Jim Grabovac, senior portfolio manager at McDonnell, believes interest rates will move higher again in December.

“That could result in a small uptick in refundings, as issuers will try to rush in before,” he said.

Refundings plummeted 46.9% from a year earlier to $8.32 billion in 246 deals from $15.65 billion in 502 deals. New money decreased 8.7% to $14.46 billion in 425 transactions from $15.84 billion in 503 deals in September of 2016.

“Refundings could increase if rates cooperate,” Grabovac said. “The only way new money increases meaningfully this year or in the future is if economic growth picks up or if a greater amount of revenue is allocated to projects from higher taxes or fees.”

The value of combined new money and refunding deals for the month dipped to $3.92 billion from $8.91 billion a year earlier. Issuance of revenue bonds declined 46.5% to $16.15 billion, while general obligation bond sales rose 3.1% to $10.56 billion.

Negotiated deals dropped 36.2% to $18.92 billion and competitive sales decreased by 6.6% to $7.12 billion. Taxable bond volume dipped to $2.44 billion from $2.46 billion, while tax-exempt issuance decreased by 34.6% to $23.89 billion.

Deals wrapped by bond insurance were down 21.7% year over year to $1.52 billion in 108 transactions from $1.95 billion in 153 deals.

All of the sectors were in the red, with healthcare falling 62.3% to $2.36 billion from $6.26 billion while housing dropped 69.2% to $764.5 million from $2.48 billion and electric power fell 62.2% to $700.7 million from $1.85 billion.

California remained the state with the most issuance, as it has all year. Issuers in the Golden State have sold $49.16 billion so far this year. New York came in second with $31.82 billion, followed by Texas with $27.99 billion. Pennsylvania was fourth with $12.65 billion and Florida rounded out the top five with $8.99 billion.

“Also notable in my mind is that a mayor and then a governor noted that creditors, including unions and bondholders, would need to come to the table and accept less in order for a city to avoid bankruptcy,” said Kozlik, referring to Hartford, Connecticut. “This sentiment, on the heels of how creditors were treated in Detroit and Puerto Rico, is important for bondholders to pay attention to.”

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