Muni Sales Are Healthy For Au­gust

The Bond Buyer - - Front Page - By AARON WEITZ­MAN

Mu­nic­i­pal bond vol­ume was sur­pris­ingly strong in Au­gust.

Data from Thom­son Reuters shows Au­gust vol­ume slipped to $34.03 bil­lion in 899 trans­ac­tions from $46.73 bil­lion in 1,248 deals in Au­gust of 2016, when the mar­ket was on its way to yearly record. Be­fore that, the last time Au­gust is­suance was as large was in 2009.

“If you look at vol­ume this past month and you com­pare it to an av­er­age Au­gust, I would say what we got this year is not bad at all,” said Robert Wim­mel, head of the mu­nic­i­pal fixed in­come team at BMO. “Al­though it has felt slower than what it ac­tu­ally is in terms of vol­ume, a lot of peo­ple are feel­ing down be­cause we are com­ing off that record year last year and we will see a net neg­a­tive is­suance this year, which doesn’t help the tone of the mar­ket.”

Wim­mel said is­suance could perk up a bit in Oc­to­ber and

Novem­ber, and av­er­age months the rest of the year, an­nual vol­ume will be around $350 bil­lion – only 15% to 20% less than 2016.

Re­fund­ings dropped 37.3% from a year ear­lier to $12.57 bil­lion in 305 deals from $20.03 bil­lion in 539 deals. New money also de­creased 8.1% to $15.14 bil­lion in 523 trans­ac­tions from $16.48 bil­lion in 595 deals in Au­gust 2016.

“We con­tinue to be in an un­usu­ally low-rate en­vi­ron­ment, with the prospect of ris­ing rates in the near fu­ture, so mu­nic­i­pal­i­ties are tak­ing ad­van­tage while they can, and re­fund­ing ex­ist­ing debt,” said Kevin Dun­phy, man­ag­ing di­rec­tor and head of pub­lic fi­nance for Mit­subishi UFJ Fi­nan­cial Group. “Lower new money is­suance over­all in­creases the per­cep­tion that there is `a lot’ of re­fund­ing oc­cur­ring.”

The value of com­bined new-money and re­fund­ing deals for the month dipped to $6.34 bil­lion from $10.22 bil­lion a year ear­lier. Is­suance of rev­enue bonds de­clined 23.1% to $19.69 bil­lion, while gen­eral obli­ga­tion bond sales fell 32.1% to $14.34 bil­lion.

Ne­go­ti­ated deals dropped 25.6% to $24.53 bil­lion, and com­pet­i­tive sales de­creased by 19.4% to $9.05 bil­lion. Tax­able bond vol­ume sank to $2.06 bil­lion from $3.82 bil­lion, while tax-ex­empt is­suance de­creased by 28.3% to $30.49 bil­lion.

Min­i­mum tax bonds soared to $1.47 bil­lion from $396 mil­lion, re­flect­ing big air­port bond deals which com­monly come at least in part with AMT bonds.

“It has been a well per­form­ing sec­tor re­cently and it seems as though in­vestors are more fre­quently seek­ing those ded­i­cated rev­enue streams,” Wim­mel said.

Pres­i­dent Trump said last night that he wants to push tax re­form, which would include a re­peal of AMT, some­thing that could have rip­ple ef­fects on the muni mar­ket.

Deals wrapped by bond in­sur­ance were down 10% year over year to $2.03 bil­lion in 148 trans­ac­tions from $2.26 bil­lion in 165 deals.

The only sec­tor to see year-over-year in­creases was trans­porta­tion, which gained 69.2% to $6.33 bil­lion in 36 deals from $3.74 bil­lion in 46 trans­ac­tions.

“Al­though the trans­porta­tion sec­tor has de­ferred main­te­nance and new in­vest­ment, and may be start­ing to un­der­take some nec­es­sary spend­ing, there are still a lot of is­suers in the sec­tor wait­ing for a fed­eral in­fra­struc­ture plan to ma­te­ri­al­ize,” Dun­phy said.

Vol­ume de­creased at least 3% for each of the other nine sec­tors, with elec­tric power post­ing the big­gest drop for the third month in a row, this time down 82.5% to $252 mil­lion from $1.44 bil­lion.

As for the dif­fer­ent types of en­ti­ties that is­sue bonds, none were in the green. The en­ti­ties saw at least a 7.3% de­crease, with col­leges and uni­ver­si­ties tak­ing the big­gest tum­ble, fall­ing to $571 mil­lion from $2.22 bil­lion.

The state of Cal­i­for­nia re­mained as the state with the most com­bined is­suance, as it has all year. The Golden state has is­sued $46.38 bil­lion so far this year. New York is sec­ond with $29.54 bil­lion, fol­lowed by Texas with $24.85 bil­lion. Penn­syl­va­nia is next with $10.84 bil­lion and Florida rounds out the top five with $8.06 bil­lion.

Dun­phy said he doesn’t see is­suance in­creas­ing any­time soon, as the prob­a­bil­ity of a late rate hike is de­clin­ing. With the lower rev­enues and po­lit­i­cal un­cer­tainty, is­suers are not rush­ing to the mar­kets, and fi­nance of­fi­cers are re­luc­tant to add ex­penses.

“Is­suers are in a wait-and-see mode, with un­cer­tainty at lev­els not ex­pe­ri­enced with past new ad­min­is­tra­tions,” he said.

“Prior ad­min­is­tra­tions have tele­graphed their in­ten­tions, pro­vided more in­for­ma­tion, and re­mained more con­sis­tent in their mes­sag­ing, so is­suers had a bet­ter sense of what might hap­pen. Now, on is­sues rang­ing from tax re­form to health­care to in­fra­struc­ture, few de­tails are avail­able upon which to make de­ci­sions like is­su­ing ad­di­tional debt.”

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