Nowhere November: muni volume sinks to $23B

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Municipal bond volume fell by almost half in November, underscoring the impact of the tax law.

Monthly volume dropped 47.5% to $23.83 billion of municipal bond sales, marking the third lowest monthly total this year, Thomson Reuters data showed. Last year at this time, issuers were racing against the clock to get advance refundings and private activity bond deals before law changed. That resulted in $45.43 billion of issuance during the same month the previous year.

“Holidays may partially explain year over year November volume drop, since there was no Veterans Day holiday last year, but I think volume decline is based more on last year’s increase in November advance refundings as details of the tax bill were emerging,” said Alan Schankel, managing director at Janney.

Total gross supply year-to-date is about $312 billion in 8,629 transactions, down from $378 billion in 10,689 deals at this point last year.

"We will start December with a Bond Buyer visible supply of $12.1 billion, the highest in more than a month, so I am optimistic that December new issue volume will be higher than November’s, but there is little chance it will come close to last year’s record December pace,” said Schankel.

Vikram Rai, head of Citi’s Municipal Strategy group said that he expected a little more issuance in November. But, there were two holiday shortened weeks (Veterans Day and Thanksgiving).

“And, since the issuers wanted to avoid any election related volatility, most chose to sit out the election week as well. Thus, issuers had limited windows to bring deals to market,” he said.

Refunding volume dropped 81% to $3 .81 billion in 101 deals, from $20.05 billion in 423 deals a year earlier. New-money volume rose 2.1% to $18.41 billion.

“I would be surprised to see the use of tax free debt for advance refundings restored by Congress next year, but I believe the refunding pace will pick up as some issues become eligible for current refundings,” said Schankel.

Rai, agreed saying that “there are more pressing legislative issues to pursue.”

Combined new-money and refunding issuance dropped 78% from November 2017 to $1.62 billion, while issuance of revenue bonds declined 47.7% to $14.64 billion and general obligation bond sales fell 47.2% to $9.19 billion.

Negotiated deal volume fell to 49.6% to $15.74 billion, while competitive sales dropped 49.1% to $5.12 billion.

Taxable bond volume increased to $3.99 billion from $2.69 billion, while tax-exempt issuance fell by 53.3% to $18.68 billion. Minimum tax bond issuance dropped to $1.15 billion from $2.75 billion.

Deals wrapped by bond insurance rose 5.1% to $1.92 billion in 123 deals from $1.82 billion spanning 156 transactions the same time the prior year.

Healthcare was the only sector that showed year-over-year increases, rising to $3.48 billion from $3.41 billion. The other nine sectors saw decreases of at least 16.5% and as high as a drop of 90.8%.

Local authorities were the only issuer by type that was in green compared to where it was last year, as it rose 7.8% to $6.41 billion from $5.94 billion.

California continues to have the most issuance among states so far in 2018. The Golden State has issued $43.98 billion; New York is second with $37.47 billion; Texas is third with $30.90 billion; Pennsylvania is next with $12.95 billion; and Florida rounds out the top five with $11.47 billion.

Rounding out the top 10 are: New Jersey with $10.28 billion, Colorado with $9.61 billion, Illinois with $9.28 billion, Washington with $8.81 billion, and Massachusetts with $7.81 billion.

Rai said Citi expects volume to be higher in December than in November but not by much.

“We expect about $24 billion in gross issuance for December. However, coupon payments should rise to $15.8 billion, which would bring the net cash flowing to investors in November to $20.6 billion,” he said. “This is bullish for municipals and out of character for December, which usually has moderate cash flow due to materially positive net issuance.”

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