The surge in municipal bond issuance has become a common sight in the financial market over the past few months. Various factors such as pent-up capital needs, reduced federal aid, and front-loaded issuance have driven state and local governments to actively participate in the market. The pace of issuance shows no signs of slowing down, prompting strategists to revise their volume forecasts for the upcoming years.
Revised Forecasts and Economic Growth
Recently, HilltopSecurities revised its issuance forecast to $480 billion, up from the previous estimate of $420 billion. This adjustment was made in response to stronger-than-expected economic growth. Similarly, Municipal Market Analytics anticipates issuance to range between $475 billion to $500 billion, surpassing the initial projection of $425 billion to $450 billion for the year. The trend of robust weekly issuance reflects a shift towards increased activity in the municipal bond market.
In 2020, the municipal bond market witnessed a record total issuance of $484.6 billion, followed by $483.234 billion in 2021. However, the volume dropped significantly in 2022 and 2023, with $391.298 billion and $384.715 billion, respectively. The current year is on track to outperform the previous record set in 2017. As of Wednesday, the total issuance stands at $345.327 billion, marking a 32.7% increase from the previous year.
The Bond Buyer 30-day visible calendar has shown fluctuations in recent days, with a significant increase on Monday followed by a decline on Wednesday. The surge in issuance can be attributed to the estimated $13.345 billion new-issue calendar, which includes mega-deals from entities such as Washington, D.C., the New York City Transitional Finance Agency, and Illinois. The timing of these deals coincides with key economic reports and the upcoming Fed meeting.
Several notable deals were priced in the primary market, including GOs for Washington, D.C., tax-exempt bonds for the NYC TFA, and GO refunding bonds for Illinois. The reception of these deals will provide valuable insights into the overall market sentiment and demand. Spreads on Illinois bonds reveal a slight widening compared to previous issuances, indicating market conditions and investor appetite.
With the upcoming election, issuers are keen on front-loading their borrowing needs to avoid potential disruptions later in the year. Historical trends show that election years witness a spike in issuance followed by a slowdown post-election. The market is preparing for a decrease in issuance towards late October, which could also affect buy-side interest and investor participation.
The surge in municipal bond issuance reflects the dynamic nature of the financial market, driven by economic growth, market conditions, and external factors such as elections. By closely monitoring issuance trends, pricing dynamics, and market responses, investors and analysts can gain valuable insights into the state of the municipal bond market and make informed decisions.