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WASHINGTON, Feb 28 (Reuters) - U.S. cities, states, and authorities this month sold the smallest amount of municipal bonds for February in 14 years as refinancing slowed to a trickle, Thomson Reuters data released on Friday showed.
Altogether, there were 622 deals totaling $14.1 billion, the lowest par amount for the month since February 2000. It was also the lowest monthly issuance since January 2011.
Refundings led the plunge. The $4.78 billion of refunding bonds, spread over 221 deals, was not even a third of the $14.55 billion in refunding bonds sold in February 2013.
That was also 26.7 percent less than the amount sold last month, making February the lowest month for refinancings since January 2011, as well.
New money debt, meanwhile, amounted to $9.33 billion in 400 deals in February. That beat the 376 deals worth $8.86 billion sold in February 2013 but was below the $11.76 billion brought to market in 375 deals last month.
Two months into 2014, the market is already showing signs of a weak year for supply, with total issuance of $32.4 billion running 35.1 percent below the same period in 2013. For refundings alone, issuance is 65.8 percent below January and February 2013. But new money sales are 24.7 percent higher.
"A general lack of supply has helped the municipal market rebound in early 2014 following weak performance in 2013," wrote Dorian Jamison, a municipal analyst at Wells Fargo Advisers, in a research note on Friday.
While Jamison expects long-term interest rates to continue to rise this year, he also believes that "a rising interest rate environment will provide a selective buying opportunity for municipal bond investors who want to put cash to work."
With interest rates scraping record lows in recent years, issuers have rushed to refinance outstanding, higher yielding debt and saved millions of dollars. Those rates, though, began rising late last year, curtailing the refunding binge.
Top-rated 30-year municipal bonds yielded 3.73 percent on Thursday, according to Municipal Market Data's benchmark scale. A year earlier, yields were 82 basis points lower at 2.91 percent, according to MMD, a unit of Thomson Reuters.
"Secondary trading activity dominated municipal market activity in February given the drought in new issue supply," wrote Chris Mier, managing director of analytical services at Loop Capital. "Announcements of a number of large new issue transactions provide some assurance that March volume will improve significantly from February's."
One of the biggest deals expected next month, $2.8 billion of Puerto Rico bonds, will boost supply.
Demand, too, could pick up. Puerto Rico is already piquing the interest of crossover buyers such as hedge funds.
Municipal bond funds have registered inflows for the last three weeks, and for six out of the nine weeks so far in 2014. Those funds only had inflows for 11 weeks during all of 2013, according to Lipper, a Thomson Reuters company.