'Issuance malaise' continues in U.S. municipal bond market
WASHINGTON, April 30
WASHINGTON, April 30 (Reuters) - Sales of U.S. municipal bonds continued to fall this month, marking the lowest April since 2011, preliminary Thomson Reuters data released on Wednesday shows.
Total issuance for the month was about $22.84 billion, 36 percent lower than the $35.91 billion sold in April 2013.
The plunge in sales this year -- so far issuance is running 29 percent below last year's sales -- is due to fewer issuers refinancing. In April, issuers sold only $10.2 billion refunding bonds in 334 deals, less than half the $20.59 billion refunding bonds sold in April 2013 across 665 deals. That was also 44 percent lower than the $18 billion sold in March in 336 deals, the data shows.
New debt sales are also tumbling as interest rates rise. In April issuers sold $12.67 billion in new bonds across 451 deals, compared to $15.32 billion over 474 deals in April 2013. Still, that was the largest monthly amount so far in 2014. In March, new money issuance was $9.62 billion in 351 deals.
Total issuance for April has not been as low since 2011, when $15.47 billion came to market in 715 deals.
The market is currently suffering an "issuance malaise," reflecting a lack of issuer confidence exacerbated by federal policy and economic worries, according to Randy Gerardes, senior analyst at Wells Fargo Securities.
Interest rates surged in April 2011, with the yield on a top-rated 30-year bond reaching 4.76 percent on Municipal Market Data's benchmark scale.
Rates then began a long and steep decline, spurring issuers to refinance. A year later, in April 2012, the yields on 30-years hovered around 3.25 percent and then fell further to hit 2.84 percent on April 30, 2013, according to MMD, a Thomson Reuters company.
At the end of 2013 they began rapidly climbing and driving issuers away. On Tuesday, the yield for a highly rated 30-year bond was 3.5 percent.
As a result, issuance so far in 2014 has been running far below historical averages, according to John Dillon, municipal strategist for Morgan Stanley Wealth Management. By the end of March, year-to-date sales were 25 percent below issuance averages since 2005.
Nonetheless, the performance of the $3.7 trillion municipal bond market has been strong, generating "equity-like results in 2014 year to date" for buyers, according to S&P Dow Jones Indices. Its overall index of investment-grade municipal bonds has returned 4.56 percent, outpacing corporate bonds and the S&P 500, according to S&P data released on Friday.
"Longer-term munis have been the real stars with the S&P Municipal Bond 20-Year High-Grade Rate Index returning 10.16 percent year to date, with yields dropping by over 65 basis points since yearend," according to S&P. (Reporting by Lisa Lambert; Editing by Leslie Adler)