Municipal bond volume dropped for a second straight month in October as refundings plunged 38.3% from a year earlier.
Analysts said issuers had already taken advantage of refunding opportunities earlier in the year, and that concern that Federal Reserve policy makers would raise rates from historic lows probably wasn't a factor in the lack of refunding. The Federal Open Market Committee on Wednesday decided to maintain low rates and said members would consider raising the benchmark in December.
"I don't know if the FOMC cut into the issuance," said Dawn Mangerson, managing director and senior portfolio manager at McDonnell Investment Management. "They had the surge of issuance in the beginning of the year and people were trying to come to the market earlier instead of waiting." Another factor in the year-over-year decline was the extraordinary volume in October 2014.
Long-term muni bond issuance declined by 14.3% to $31.97 billion in 882 issues, from $37.30 billion in 1,037 issues during the same period of time last year, according to Thomson Reuters data. Though it paled by comparison to last year, the past month's volume was greater than in October 2013, when issuers sold $28.94 billion.
Although most market participants didn't think the FOMC would announce a rate hike, the possibility of higher rates may have contributed to the dip in refunding issuance this past month. Jim Grabovac, managing director and senior portfolio manager at McDonnell said that the Treasury market was much more affected by the FOMC than the municipal market.
Muni refundings decreased to $10.57 billion in 341 transactions in October from $17.13 billion in 446 transactions in the same month last year.
Tom Kozlik, managing director and municipal strategist at PNC Capital Markets said there is a chance refundings could pick up over the final months of the year.
"Refundings are likely to be an important part of total issuance over the next two months," he said. "Refundings could also continue at a decent pace into 2016 depending upon the yield curve."
New money issuance was back in the green after being in the red last month, up 6.8% to $15.21 billion in 464 deals from $14.24 billion in 502 deals.
says that it makes sense that issuers are only carefully adding new money debt.
"Credit pressures exist from several sources, and one way to manage is to not add more fixed cost expenditures. Many issuers are controlling what is in their power to control," Kozlik said.
Issuance of revenue bonds was 14.5% lower to $20.35 billion, while general obligation bond sales fell by 13.9% to $11.52 billion.
Negotiated deals were down 21% to $23.05 billion and competitive sales increased by 47.1% to $8.51 billion.
Taxable bond volume was 16.9% lower to $2.31 billion from $2.78 billion, while tax-exempt issuance declined by 17.6% to $27.70 billion. Minimum tax bonds more than doubled to $1.95 billion from $889 million.
Bond insurance continued its decline for the third straight month, as the volume of deals wrapped with insurance declined by 16% to $1.60 billion in 146 transactions from $1.91 billion in 132 transactions.
Issuance declined in eight out of 10 sectors for the month. Transportation issuance rose 25% and utilities 4.4%, the only sectors with increases.
"While it is nice to see the transportation sector up, unfortunately, the money isn't going to where it is needed most like highways and tollways," said Mangerson. "The airport deals we have seen this month such as O'Hare and Broward County have pushed those numbers up higher as they dominated the calendar."
California, Texas, New York, Florida and Pennsylvania remain the top issuers for the year to date.
The Golden State kept the top spot with $48.69 billion of issuance thus far in 2015, while the Lone Star State is a close second with $42.09 billion. The Empire State is third with $37.80 billion, the Sunshine State came in fourth with $17.95 billion and the Keystone State ranked fifth with $15.97 billion.
"We see the refundings picking up a bit to end the year, as those issuers who have waited will be rewarded and surprised by the yields that are lower still," she said. "We still believe we will reach the $400 billion plateau, as supply should be picking up more now through the end of the year."
