February volume surged year-over-year as pent-up issuance needs, increased investor demand and a more stable muni interest rate environment led issuers to come to market.
February is a historically low issuance month and 2023 levels — the lowest month of issuance in a down year — were low even for February standards, so the total in 2024 is not as dramatic as the percentage increase looks.
A slew of large deals toward the end of the month contributed to the growth with preliminary totals showing February’s volume rose 25.4% to $27.607 billion in 509 issues from $22.011 billion in 483 issues in 2023. The preliminary figures may not include some of this week’s deals. As of Thursday morning, issuance in February is below the $29.316 billion 10-year average, according to LSEG Refinitiv data. Year-to-date issuance sits at $58.567 billion, up from $46.066 billion, or a 27.1% increase, according to preliminary data.
Despite the increase in issuance, February remains one of the lighter months for bond volume, resulting from “typical seasonal patterns,” said Peter Block, managing director of credit strategy at Ramirez & Co.
Tax-exempt issuance rose 28.7% in February to $25.661 billion in 461 issues from $19.940 billion in 425 issues in 2023.
New-money rose 20.3% to $21.435 billion from $17.823 billion a year prior. Refunding volume also rose from a year ago to $4.590 billion from $3.741 billion in 2023, marking a 22.7% increase.
High rates and high inflation, coupled with rich reserves, pushed off or delayed issuers coming to market in 2023, noted James Pruskowski, chief investment officer at 16Rock Asset Management.
With a clearer picture from the Federal Reserve on the end of its rate hikes, fund flows’ return to the sector, lower interests rates and inflation down, a more favorable market has enticed issuers to bring more deals, he said.
Some of the issuance in February was holdover from the end of last year, said Chris Brigati, director of strategic planning and fixed income research at SWBC.
Issuers “pushed off” deals in 2023, waiting on the sidelines for improved market conditions, he said.
Following the yearend rally, some issuers continued to delay, not issuing debt at the end of 2023, as they waited to see if rates could go lower, Brigati said.
However, some issuers with “pent-up demand” could no longer wait for rates to go any lower and came to market in February, he said.
Increased stability and steadier interest rates contributed to February’s increase as it meant that “from a macro standpoint, there was there was a settling of volatility that investors took comfort in,” Pruskowski said.
Some market participants, Pruskowski included, expect issuance may be front-loaded this year, particularly because it is an election year. Some issuers may want to avoid any uncertainty that may come along with the presidential election in the fourth quarter.
Larger deals toward the end of the month, including
Supply is expected to pick up over the next several months.
Block estimates $32 billion of issuance in March and $36 billion in April.
That momentum will continue through the fall, he said.
He noted that “now the year’s starting in earnest,” with the “trade du jour” coming from tax-exempt refundings of both
To the extent that issuance becomes “overwhelming” and cheapens the market “meaningfully,” that would take some of the refunding savings “right out,” he said.
Preliminary issuance details
Revenue bond issuance increased 58.1% to $18.681 billion from $11.817 billion in February 2023, and general obligation bond sales fell 12.4% to $8.926 billion from $10.194 billion in 2023.
Negotiated deal volume was up 25.6% to $20.787 billion from $16.544 billion a year prior. Competitive sales increased 69.6% to $6.411 billion from $3.780 billion in 2023.
Deals wrapped by bond insurance saw a 10.4% increase to $3.710 billion in 103 deals from $3.361 billion in 86 deals in 2023.
Bank-qualified issuance rose 17.8% to $542.8 million in 127 deals from $460.9 million in 118 deals a year prior.
In the states, Texas claimed the top spot year-to-date.
Issuers in the Lone Star State accounted for $7.590 billion, down 16.4% year-over-year. California was second with $7.444 billion, up 7.8%. New York was third with $4.958 billion, up 25%, followed by Massachusetts in fourth with $4.431 billion, up 389.1%, and Alabama in fifth with $3.892 billion, an 178.6% increase from 2023.
Rounding out the top 10: Minnesota with $2.120 billion, up 226.4%; New Jersey with $1.959 billion, up 275.7%; Wisconsin with $1.897 billion, down 20.2%; Illinois with $1.855 billion, down 15.9%; and Washington with $1.804 billion, up 65.7%.