Municipal bond issuance was little changed in January compared to the first month of 2018, marking the second year in a row volume got off to a slow start and the third lowest January issuance since 2014, when it was $19.6 billion.
January volume ended at $22.34 billion in 514 transactions, up slightly from the $21.73 billion in 583 deals in January 2018, according to data from Thomson Reuters.
“Although disappointed by the slow start to the year, I believe the issuance pace will improve in coming months as infrastructure urgency grows,” said Alan Schankel, managing director and municipal strategist at Janney. “That being said, I do not expect this year’s volume to exceed last year’s by more than 10%.”
2018 volume was $338.93 billion, after two robust years of$448.61 billion in 2017 and $444.79 billion in 2016.
Jack Muller, CFA and municipal securities strategist at Citi, said that Citi’s forecast for January released right before year-end was for $21.5 billion, so this month has essentially met expectations.
“Although we’re expecting more issuance in 2019 than we got in 2018, we did not expect it for January specifically, because our reasons for the higher annual forecast (better infrastructure investment, more callables to be refunded) are only expected to materialize later in the year,” said Muller.
Refunding volume for the month was up 39.5% to $3.82 billion in 71 deals, from $2.74 billion in 118 deals a year earlier. New-money volume fell 6.8% to $16.05 billion from $17.23 billion.
“I expected that January refunding would be higher year-over-year because there were so few in January 2018 since so many refundings had been pushed forward to late 2017 to beat the tax law change,” Schankel said. “I think the refunding pace will gradually pick up with more potential current refundings. There has also been an uptick in refundings using forward delivery which I expect to continue.”
Muller noted that Citi expects more refundings this year than last because the universe of refundable debt is larger.
“One reason for this is that 2019 will bring the first big wave of call dates for the roughly $50 billion worth of BABs callable at par,” he said, referring to Build America Bonds, a federal program that briefly allowed municipal issuers to sell taxable debt and get federal interest subsidies. The bonds were only sold between April 2009 and the end of 2010.
Combined new-money and refunding issuance was 39.9% higher from January 2018 to $2.46 billion, while issuance of revenue bonds declined 4.7% to $12.39 billion and general obligation bond sales rose 14.1% to $9.95 billion.
Negotiated deal volume was higher by 7.1% to $15.54 billion, while competitive sales increased 9.7% to $6.31 billion.
Taxable bond volume increased to $2.54 billion from $2.36 billion, while tax-exempt issuance fell by 1.5% to $18.40 billion. Issuance of bonds with interest subject to the Alternative Minimum Tax more than doubled to $1.39 billion from $678 million.
“The increase in AMT issuance may partially reflect stronger demand due to tax law changes under which the corporate AMT was eliminated and far fewer individual investors are subject to AMT, at least through 2025 tax year,” said Schankel.
Muller added that AMT supply can be quite lumpy simply because it is a small sector, and one or two large deals can swing the month-to-month number dramatically.
“That is what we saw in January. When 2019 is all said and done, we do not expect AMT issuance to be that far out of line,” he said.
Deals wrapped by bond insurance for the month were up to $800 million in 81 deals from $709 million spanning 80 transactions the same time the prior year.
Four sectors were up for the month, while the rest of the sectors saw a decline of at least 3.4%. General purpose was up 73.1% to $6.68 billion from $3.86 billion. The housing sector was up to $816 million from $257 million, environmental facilities increased to $139 million from $14.9 million and electric power rose to $598 million from $27 million.
Three types of issuers were in the green, led by counties and parishes which grew to $1.91 billion from $832 million. Districts also saw an increase to $6.39 billion from $5.12 billion and local authorities rose to $3.31 billion from $2.81 billion.
California starts the year off right where it ended last year, leading all states in terms of muni bond issuance. Issuers in the Golden State sold $3.95 billion of municipal bonds; New York was second with $2.30 billion; Texas was third with $2.16 billion; Massachusetts was next with $1.74 billion; and New Jersey rounded out the top five with $1.37 billion.
Colorado was next with $1.25 billion, followed by Florida with $910 million, Illinois with $897 million, Pennsylvania with $736 million and Michigan with $693 million.
