February volume drops year-over-year as taxable share soars

Municipal new issue volume in February fell year-over-year as tax-exempts led the way down and refunding volume sank amid more new-money issuance.

While issuance fell significantly from 2020, it was higher than January’s and only the fifth time in 35 years that volume exceeded $30 billion in February.

Total volume fell 27.5% to $30.608 billion in February 2021 from $42.229 billion in 2020. It is down 24.2% in the first two months of 2021. February issuance was still higher than January’s $24.023 billion.

Tax-exempt financings fell 34.8% to $19.569 billion in February from $29.998 billion a year earlier while taxables fell 9.4% to $10.316 billion from $12.010 billion in 2020. In January tax-exempt financings fell 32.6% to $14.662 billion and taxables fell 18.6% to $6.740 billion.

However, taxables rose as a percentage of issuance in February 2021, clocking in at 36% of the month’s total, up from 28% in 2020.

“During last February, everything was on autopilot because it was the best of all possible worlds,” said John Hallacy, founder of John Hallacy Consulting.

About a year ago, COVID was beginning its rage and at that point, its severity had yet to be fully understood. Muni yields hit fresh record lows multiple times early in 2020 and as of Feb. 28, 2020, yields were sitting at 0.94% on the 10-year and 1.52% on the 30-year.

As of Friday, benchmark yields sat at 1.14% in 10-years and 1.81% in 30, as the market played catch-up to rising global bond yields.

But while the moves in UST are significant, munis “remain most sensitive to supply and demand for the paper among other factors,” Hallacy said.

“February is traditionally lighter but keep in mind that we also have a new administration in Washington,” Hallacy noted, which also could play a role in issuer behavior as new policies are hashed out. “Many of the important policies that may change are to be determined and it is challenging to undertake a major financing when this is the case. This factor is especially true in the transportation sector.”

New-money issuance rose 15.7% to $21.308 billion from $18.420 billion in 2019 and refundings fell a dramatic 59.4% to $7.845 billion in February from $19.320 billion a year prior.

Negotiated issues fell 32.8% at $20.524 billion from $32.889 billion in 2020 while competitive deals ticked up 17.9% to $8.367 billion from $7.097 billion a year earlier.

Bond insurance volume more than doubled from February 2020 to wrap $3.955 billion. Private placements came in at $126 million, down 94.4% from $2.241 billion in 2020.

Housing fell 23.6% to $1.941 billion. The transportation sector fell 46.6% to $3.380 billion from $6.306 billion in 2020.

State governments were down 35.3% to $2.146 billion from $3.320 billion. Counties and parishes rose 34.2% to $1.774 billion from $1.322 billion in 2020 while local authorities fell 56.2% to $6.135 billion from $13.992 billion.

Healthcare dropped 69.2% to $873.9 million from $2.834 billion while colleges and universities also dropped nearly half at 49.3% to $2.226 billion from $4.394 billion in 2020. This again points to a rise in corporate CUSIP issuance in those sectors, stealing away some of the traditional municipal issuance.

Issuers in California sold $8.575 billion of bonds, 6.4% higher than $8.06 billion in 2019. New York took the next spot with $6.917 billion, 5.5% less than $7.318 billion a year earlier. Texas was in third with $6.654 billion, down 38.9% from $10.894 billion. Colorado rose 127.8% to $2.577 billion from $1.131 billion in 2019. Tennessee topped out the top five with $2.548 billion, up 443.5%.

New Jersey rose 42.7% to $2.168 billion from $1.519 billion. Pennsylvania fell 33.3% to $2.144 billion from $3.214 billion. Illinois dropped 16.3% to $2.032 billion from $2.428 billion. Florida came in 32.8% lower at $1.755 billion versus $2.613 billion in 2019. Maryland reached the top-10 with $1.717 billion, an 86.7% increase from $920 million last year.

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