February volume surged year-over-year as pent-up issuance needs, increased investor demand and a more stable muni interest rate environment led issuers to market.
A slew of large deals toward the end of the month contributed to the growth, with totals showing February's volume climbed 43.3% to $31.534 billion in 557 issues from $22.011 billion in 483 issues in 2023. Issuance in February is above the $29.8708 billion 10-year average, according to LSEG Refinitiv data.
Tax-exempt issuance rose 47.9% in February to $29.486 billion in 507 issues from $19.940 billion in 425 issues in 2023.
New-money rose 38.1% to $24.608 billion from $17.823 billion a year prior.
Refunding volume also rose from a year ago to $5.334 billion from $3.741 billion in 2023, marking a 42.6% increase.
High rates and high inflation, coupled with rich reserves, pushed off or delayed issuers coming to market in 2023, noted James Pruskowski, chief investment officer at 16Rock Asset Management.
With a clearer picture from the Federal Reserve on the end of its rate hikes, fund flows' return to the sector, lower interest rates and inflation down, a more favorable market has enticed issuers to bring more deals, he said.
Some of the issuance in February was a holdover from the end of last year, said Chris Brigati, director of strategic planning and fixed-income research at SWBC.
Issuers "pushed off" deals in 2023, waiting on the sidelines for improved market conditions, he said.
Following the yearend rally, some issuers continued to delay, not issuing debt at the end of 2023, as they waited to see if rates could go lower, Brigati said.
However, some issuers with "pent-up demand" could no longer wait for rates to go any lower and came to market in February, he said.
Some market participants, Pruskowski included, expect issuance may be front-loaded this year, particularly because it is an election year. Some issuers may want to avoid any uncertainty that may come along with the presidential election in the fourth quarter.
Larger deals toward the end of the month, including
Supply is expected to pick up over the next several months.
That momentum will continue through the fall, he said.
He noted, "now the year's starting in earnest," with the "trade du jour" coming from tax-exempt refundings of both
Barclays strategists Mikhail Foux, Clare Pickering and Mayur Patel expect to see an uptick in tax-exempt supply, most likely during the first half of the year, due to Build America Bond extraordinary redemption provision calls, as more ERPs are exercised.
"In the current environment, issuers may find that they could refund these bonds by issuing tax-exempt bonds and generate substantial savings," BofA strategists said.
Updated issuance detailsRevenue bond issuance increased 68.5% to $19.912 billion from $11.817 billion in February 2023, and general obligation bond sales rose 14% to $11.622 billion from $10.194 billion in 2023.
Negotiated deal volume was up 48.3% to $24.530 billion from $16.544 billion a year prior. Competitive sales increased 74% to $6.576 billion from $3.780 billion in 2023.
Deals wrapped by bond insurance saw a 29.5% increase to $4.352 billion in 111 deals from $3.361 billion in 86 deals in 2023.
Bank-qualified issuance rose 22.6% to $542.8 million in 127 deals from $460.9 million in 118 deals a year prior.
In the states, Texas claimed the top spot year-to-date.
Issuers in the Lone Star State accounted for $8.595 billion, down 5.3% year-over-year. California was second with $8.159 billion, up 18.1%. New York was third with $6.201 billion, up 56.4%, followed by Massachusetts in fourth with $4.431 billion, up 389.1%, and Alabama in fifth with $3.892 billion, a 178.6% increase from 2023.
Rounding out the top 10: Minnesota with $2.131 billion, up 228.1%; New Jersey with $1.965 billion, up 276.8%; Wisconsin with $1.945 billion, down 18.2%; Illinois with $1.871 billion, down 15.2%; and Washington with $1.834 billion, up 68.5%.
