Muni volume climbed closer to normal in April

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Municipal bond volume rose in April to the highest in the year to date, as an increase in new-money deals partly offset a plunge in refunding transactions.

Though it was the busiest month of this year, April volume dipped to $29.50 billion from $30.71 billion a year earlier, according to Thomson Reuters data. Issuers completed 700 transactions, down from 935 in April 2017. It was the lowest volume in the fourth month of the year since 2014, when they sold $26.76 billion.

“Although muni volume continued the 2018 trend of lower issuance, I was encouraged to see that new-money borrowing in April actually rose by 19% after increasing by 5% in the first quarter, suggesting that state and local governments are financing new projects,” said Alan Schankel, managing director and municipal strategist at Janney.

The muni market has been "wacky" so far this year, said Dawn Mangerson, senior portfolio manager at McDonnell Investment Management.

“We have had low supply and the forward calendar doesn’t look large, so I don’t think we are going to see a surge anytime soon,” she said. “Also, the muni seasonal technicals have also been muted.”

Munis still haven't shaken off the effects of the pre-tax-reform rush at the end of 2017, in which issuers came to market early with deals that otherwise would have waited until this year, analysts said.

The new tax law took effect this year unexpectedly preserved preserved private activity bonds, but eliminated tax exempt advance refunding deals.

“At some point, you would think some of the tax reform effect has to wash through and things will start to normalize,” said Jim Grabovac, senior portfolio manager at McDonnell.

Refunding volume sank to $3.64 billion in 101 deals from $8.11 billion in 262 deals a year earlier.

New-money issuance increased 19.2% to $19.13 billion in 565 deals, this is up from $16.06 billion in 586 deals a year earlier.

“It is a one to one decline, new money is right around where it was at this time last year, and all the downdraft is in refundings,” Grabovac said.

Combined new-money and refunding issuance nudged up to $6.72 billion, while issuance of revenue bonds was down 11.7% to $16.28 billion, and general obligation bond sales rose to $13.22 billion from $12.28 billion.

Negotiated deal volume was about even at $22.78 billion and competitive sales increased by 5% to $6.43 billion.

Taxable bond volume dipped to $3.73 billion from $3.74 billion, while tax-exempt issuance decreased by 9.2% to $23.96 billion. Minimum tax bonds gained to $1.81 billion from $568 million.

“The large uptick in AMT is primarily due to one issue – the $1.4 billion sale for LaGuardia Airport backed by Delta Airlines,” said Schankel.

The volume of deals wrapped with bond insurance fell 46.9% to $1.17 billion in 92 deals from $2.21 billion in 154 deals a year earlier.

“It’s notable that bond insurance covered only 3.6% of April deals compared to the 5% plus share of recent years as well as the first quarter,” Schankel said.

Bank-qualified volume dropped 33.8% to $1.05 billion from $1.58 billion.

The decline is "somewhat reflective of reduced bank demand in light of lower corporate tax rate included in December tax reform package,” said Schankel.

Four of the 10 sectors saw year-over-year increases, as general-purpose transactions almost doubled to $11.73 billion from $6.65 billion, public facilities rose to $1.11 billion from $660 million, utilities increased to $4.69 from $3.53 billion and environmental facilities deals jumped to $159 million from $18 million.

The other six sectors were in the red with the biggest drops coming from healthcare, which was at $1.12 billion compared with $5.44 billion, electric power at $14 million from $909 million, development which dropped to $239 million from $654 million and education which went to $6.39 billion from $8.51 billion.

Five types of issuers were in the green. State governments gained 20.3% year-over-year to $3.86 billion from 3.21 billion, colleges and universities increased to $1.24 billion from $668 million and counties and parishes gained to $2.37 billion from $1.41 billion.

State agencies' issuance dropped to $8.48 billion from $9.99 billion and districts volume fell to $4.44 billion from $6.66 billion.

California continues to have the most issuance among states so far in 2018. The Golden State has issued $14.39 billion; New York is second with $12.27 billion; Texas is third with $8.78 billion; Pennsylvania is next with $4.55 billion; and New Jersey rounds out the top five with $4.39 billion.

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