Over the past few months, there has been a significant increase in weekly issuance of municipal bonds. This surge can be attributed to various factors such as pent-up capital needs, diminishing federal aid, and front-loaded issuance by state and local governments. The pace of issuance shows no signs of slowing down, prompting strategists to revise their volume forecasts for 2024. HilltopSecurities has recently raised its issuance forecast to $480 billion, up from an initial projection of $330 billion. Similarly, Municipal Market Analytics now anticipates issuance to reach $475 billion to $500 billion based on the patterns seen in 2016. The current record of total issuance stands at $484.6 billion in 2020, followed closely by $483.234 billion in 2021. After disappointing figures in 2022 and 2023, this year is on track to surpass the previous record set in 2017.
As of the latest data, municipal bond issuance has reached $345.327 billion, marking a 32.7% increase over the previous year. The Bond Buyer 30-day visible calendar recently hit $20.02 billion, the highest in nearly four years. However, after a busy primary market session resulting in an estimated $7.7 billion in deals, the visible calendar dropped to $13.11 billion for the following day. The surge in issuance has been supported by a new-issue calendar totaling $13.345 billion for the week, with notable three billion-dollar-plus issues from Washington, D.C., the New York City Transitional Finance Agency, and Illinois.
The sizable deals in the current market have unique features, with most issuers aiming to enter the market before key economic reports are released. This week’s busy calendar is also attributed to the upcoming Fed meeting, with Monday being highlighted as the most “productive” day for issuers. However, the practice of issuing deals over $100 million on Mondays is uncommon. The success of these recent deals will provide insight into the overall health of the municipal bond market.
The reception of the recent deals will be a crucial indicator of investor demand and market sentiment. Factors such as local reinvestment demand, geographic preferences, and deal sizes can all influence the pricing and reception of municipal bonds. While market participants anticipate continued issuance activity, unforeseen events such as inflationary pressures or outlier economic data could disrupt market dynamics. The surge in issuance is expected to continue as issuers seek to secure necessary funding ahead of potential market disruptions, such as the upcoming election.
Looking ahead, the market is likely to witness continued issuance activity as issuers strive to meet borrowing needs and navigate potential uncertainties. Historically, election years have seen front-loaded issuance followed by a slowdown towards the end of the year. Market participants are keen to lock in favorable financing terms before the election to avoid any disruptive market conditions. As issuance levels fluctuate, buy-side interest may also shift, reflecting cautious investor behavior in response to market conditions.
The surge in municipal bond issuance reflects a combination of market dynamics, economic factors, and investor sentiment. Understanding the drivers behind this surge and anticipating potential market developments are crucial for market participants to navigate the current environment effectively. As issuance levels continue to rise, monitoring market activity and responding to changing conditions will be key to success in the municipal bond market.