Investors' can put aside concerns about volume falling off at the end of the year.
October's volume of $34 billion came in 17.7% higher than a year earlier, the third month in a row issuance was greater than at the same time in 2013, according to Thomson Reuters data.
And analysts see no indication volume will decline in the near future. Adam Buchanan, sales and trading vice president at Ziegler Institutional Sales, pointed out the 30-day visible supply is pegged at $12.35 million, above the average of $7.75 billion from the beginning of November 2013 to Friday, according to Bloomberg.
Issuance kicked up during October, Buchanan said, because of a surge in refundings as issuers take advantage of the current low interest rates. Refundings jumped by 67.4% from the same month last year, to $12.34 billion from $7.4 billion.
"There's your difference," he said. "You're going to see an ebb and flow in terms of sector volume because of how much time transactions take to put together, but refunding volume is a function of rates."
Jim Colby, chief municipal strategist at Van Eck Global, also said low interest rates factored into the growth in supply.
"The Fed has made it pretty clear we're going to experience nominal interest rates for the near future," he said in an interview. That "might be six months or that might be nine months. That sets the groundwork for and places the foundation for the continued performance of munis, at least through the end of the year."
He noted that at the beginning of the year munis outperformed because supply was low while demand for the products remained high, and predicted that the current rise in issuance won't impair municipal bonds' performance.
"The continuing theme of the real driving force behind the performance of munis this year is the imbalance of supply and demand," he said. "Despite the 30-day visible calendar [number] and the two to three sizable issuances that have come to market, balances have been very well received. Investors' portfolios are flush with cash from coupon payments and bonds maturing, and they are looking for some vehicle to reinvest in, and the inescapable fact is that munis continue to be a favorable asset because they have performed well."
New money issuance was also up, though only by 3.6% from the same month last year at $17.28 billion.
Private Placements Not aThreat
Market Participants said the recently popularity of private placements isn't one of the reasons demand for publically issued municipal bonds has spiked this year.
According to Thomson Reuters numbers private placements have declined by 80.1% for October from the same month last year, totaling a mere $497.2 million. Market pros have said that the private placements tracked and reported doesn't reflect the true amount of bonds placed through direct loans.
One of the largest deals in October, $1.6 billion revenue bonds for 3 World Trade Center sold by New York Liberty Development Corp. and priced by Goldman Sachs was a private placement. Colby said the World Trade Center deal was "uniquely and unusually" tailored for the high yield universe.
The 3 World Trade Center bonds were unrated, and Colby said he heard that some hedge funds participated in the deal, but that the main buyers were high yield municipal funds.
Buchanan said that borrowers are simply using private placements to get transactions done.
"The traditional buyers might not normally look at [private placement deals] but because of the lack of volume [the underwriting team] is doing work to structure the deal to a level where buyers are comfortable buying them," he said. "If spreads were not so compressed you would not see as many private placements getting done because they don't have as much liquidity in the secondary.
Yields on the benchmark triple-A general obligation 10-year fell by 75 basis points to 2.04% from Jan 2 to Thursday, according to Municipal Market Data. The 30-year's yield dropped by 122 basis points to 2.98% during the same period.
Negotiated volume increased by 23.1% to $21.2 billion for Oct 2014 from the same time last year, and competitive issuance rose by 8.6% to $5.78 billion.
