LOS ANGELES - Driven by a continued steep decline in refundings, long-term municipal bond issuance remained paltry, with the lowest February volume since 2000.
February issuance declined 40.4% to $14.7 billion in 633 issues, way off from the previous year's $24.7 billion in 1,035 issues, according to Thomson Reuters.
February volume hasn't been that low since 2000, when issuers sold $13.3 billion of debt. February issuance in years since then has remained well above $21 billion, with the exception of 2011, when volume totaled $16.5 billion.
"I wasn't really surprised," said Roberto Roffo, senior vice president and portfolio manager at Advisors Asset Management. "February and the beginning of the year is really the beginning of a trend I see for the rest of the year as issuance drops."
Roffo estimates that volume for 2014 will end up dropping to roughly $280 billion, compared to last year's $335 billion.
Refundings during February were down 62.9% at $3.9 billion in 193 issues, compared to last year's $10.6 billion in 525 issues. New money issuance saw a very slight increase of .7% to $9.6 billion in 403 issues from $9.5 billion issued in February 2013.
Deals that combined refunding and new money dropped 73.4% year-over-year to $1.2 billion.
"New money is right there from February to February but that 63% really proves the fact that refundings are dropping and that's going to be a big part of the decline," Roffo said. "It's definitely what I expect going forward."
Both tax-exempt issuance and taxable issuance declined substantially from last year by 38.9% to $13.1 billion, and 58.1% to $1.2 billion, respectively.
General obligation bond deals were down 38.4% at $7 billion in 427 issues, and revenue bond deals dropped 42.1% to $7.7 billion in 206 issues.
Negotiated deals were down 36.1% to $10.3 billion and competitive deals were down 47.7% to $3.8 billion.
Private placements dropped 53.5% to $580.7 million.
"Just looking at the year over year downturn, I think it's continued evidence of a challenging comparison to months from early 2013, when rates generally were much lower," said John Dillon, chief municipal bond strategist at Morgan Stanley Wealth Management.
The early months of 2013 started out with strong issuance as rates stayed low. For the first quarter, issuance was up 6.5% from 2012, while each quarter that followed saw declines of 17.5%, 16.3%, and 18.6%.
Issuance dropped off starting in the middle of the year after rates went up and refunding deals were postponed or shelved.
"This is not to say we didn't have a poor month, generally speaking, as far as issuance goes," Dillon said. "But I think the fact that we're coming off such a difficult comparison really makes the optics look very, very weak."
By May, he anticipates that dynamic to dissipate. Dillon said he expects that new money issuance will be positive, providing an offset to a continued downturn in refunding, and the intensity of such downturns will diminish.
Another possible reason for low issuance so far this year could actually be Mother Nature, according to municipal analysts at Bank of America Merrill Lynch.
"In our opinion, the low year-to-date municipal bond issuance is largely attributable to the severe weather this year," analysts said in a report released Friday.
The report included a map of the states, showing which ones have been experiencing weather that is considered "much below normal," such as California and Nevada; "much above normal," including New York, Pennsylvania, and Ohio; and "near normal," which includes much of Texas, the Dakotas, and Nebraska.
The compilation showed that issuance for the year to date has decreased by 43.9% from last year in the states with temperatures much below normal and by 49.4% in the states with temperatures much above normal.
In states with temperatures near normal, however, issuance has increased slightly by 4.7%.
Among the sectors, each one saw a decline in issuance, with the exception of the development and transportation.
The electric power, environmental facilities, and health care sectors were down 99.2%, 96.1%, and 78.7%, respectively. Issuance from the largest sector education declined 43.7% from February 2013 to $5.2 billion.
The transportation sector, on the other hand, increased 128.1% from last year, with $2.7 billion in 26 issues. The development sector also increased issuance by 63.3% to $436.4 million.
Fixed-rate debt dropped 39.6% to $13.5 billion, while variable-rate issuance increased. Variable-rate short put bond issuance was up 27.3% at $554.3 million and variable-rate long or no put bond issuance was up 49% at $308.6 million.
Bond insurance also saw an increase of 61.6% at $1.1 billion in 85 issues from last year's $698.2 million in 87 issues.
Out of all long-term bonds issued in February, 7.7% were insured. That compares to 2.8% of total bonds insured last year.
Recent events in Detroit and Puerto Rico are likely to drive interest in bond insurance, which hasn't really picked up in years, Dillon said.
Among cities and towns, issuance was down 28.1% to $1.7 billion. Districts sold 30.1% less debt, totaling $4.2 billion. Counties and parishes also saw a decline, dropping by 62.9% to $784.4 million.
Issuance among state governments was down 7.8% to $2.2 billion, and state agencies saw a 59.7% drop to $2.2 billion.
"As far as new money goes, states don't really need to issue as much bonds as you'd think they're in pretty decent shape and tax revenues are okay," Roffo said. "So I don't see them running to issue new bonds, unless it's something they really need."
Issuers in most states sold less debt in February than they did last year, including California, which saw a 51.7% decline in primary market volume to $3.3 billion. That compares to last year, when the Golden State sold the most debt in the country at $6.8 billion.
California slid down to the third spot this February, while Texas took first place with $5.3 billion in a 20.7% increase from last year. In New York, which came in second, volume was up 9.4% to $4.5 billion.
Illinois came in fourth, and Florida took the fifth spot.
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