Muniland’s greatest hits of 2012
The municipal bond market is one of the smaller corners of the bond market. It is dwarfed by the U.S. Treasury, government-sponsored organizations, mortgage and corporate bond sectors. Yet, muniland is larger than the equity market, as the data above (2011 and 2012 3Q year to date) shows, and it probably has more issuers than every sector combined. Muniland is a hopping place.
Thomson Reuters released its 2012 summary of municipal bond issuance data. Here is how it looked:
US municipal bond volume in 2012 reached $366 billion, a 32 percent increase over last year, but still behind 2010’s record setting underwriting volume of $430 billion by 14.8 percent.
The majority of municipal bond deals are relatively small by bond-market standards.
The average deal size in 2012 was slightly up over 2011, $29.2 million from $27.3.
The big hat state of Texas led the pack on the number of new bond issues:
Texas issuers led the 2012 rankings for all deal sizes, with 1,277 issues.
Lots of extra-small offerings came to market with a substantial increase over 2011 issuance. Bonds for education were the top offerings in this space:
Proceeds in the $10 million and under market segment reached nearly $31 billion, an increase of 29.5 percent from 2011’s $23.9 billion. Proceeds from education remained the top most issued bonds in the low-composite market, securing a 34.9 percent share.
But there also were mega-sized bond offerings, which are highly-favored by commercial banks, mutual funds and insurance companies. Big issues are more liquid to trade after issuance and tend to have more research coverage and more trade prices as references. New York State was very active in the large issue space:
In total, 27 long-term issues of at least $1 billion came to market in 2012 for a total of $40.7 billion – of which issuers in New York state captured 41.4 percent, with $16.8 billion.
Muniland’s largest long term deal in 2012 was the Michigan Finance Authority issue of $2.917 billion for “Unemployment Obligation Assessment Revenue Bonds Series 2012A.” These were bonds that Michigan issued to repay borrowed funds from the federal government for unemployment benefits paid out during the recession. It turned out, for Michigan and other states, that it was cheaper to borrow in the municipal market than to pay the interest rate charged by the federal government on these loans. The second largest bond offering, by Pennsylvania, was for the same reason.
The vast majority of muniland bond offerings were for fixed-rate debt, as the variable rate market contracted to almost nothing:
Among all long-term issues, 93 percent were structured with fixed rate coupons, nearly unchanged from 2011, while nearly 4 percent were structured with variable rate coupons, down 10.5 percent from 2011.
The trade association for dealers, SIFMA, sees an increase of long term issuance in 2013 to $393 billion in long-term bills, up from 2012’s $366 billion. Stay tuned for 2013’s greatest hits.