As we move into 2024, the bond market is gearing up for an exceptional year, with issuance levels signaling a potential record-breaking scenario. September 2023 was a landmark month, showcasing a remarkable 44.5% increase in bond issuance compared to the previous year. This surge was predominantly led by state and local governments, with new-money deals setting a significant pace. According to data from LSEG, the total bond volume for September reached an astonishing $44.628 billion, spread across 752 unique issues—a substantial leap from $30.88 billion in 619 issues a year earlier.
This continuous rise is reflective of a wider trend encompassing the entire year, where, year-to-date, issuance has climbed to $380.423 billion—up by 35.2% over the previous year and nearing the total amount issued in 2023 of $384.715 billion. If the market maintains its current trajectory, surpassing the record high of $484.601 billion achieved in 2020, bond issuers would need to roll out over $104 billion in new issuances during the last quarter of 2023.
Several elements have converged to create this robust resurgence in bond issuances. For one, the conclusion of pandemic-related financial aid has catalyzed municipal issuers to rethink their financing strategies. Drew Gurley, a managing director at Siebert Williams Shank, noted that with the pandemic’s financial lifelines receding, there has emerged a pressing need for new financing—essentially prompting municipal issuers back into the vault of the municipal bond market.
Tax-exempt issuance in September reached $40.944 billion, marking a notable increase of 46.6% from the previous year. Moreover, taxable issuance soared by an impressive 135.6%, highlighting the evolving landscape of financing options available to issuers as they adapt to changing market conditions.
A defining characteristic of this bond issuance boom has been the prominence of mega deals, which have become increasingly common. In September, several billion-dollar-plus deals made headlines, including substantial offerings from Washington, D.C., Texas, and New York City. This influx of large deals illustrates a significant shift in investor appetite—suggesting that there is increased investor acceptance and demand for larger issuances.
Gurley emphasized that heightened liquidity in the market has led issuers to take the plunge on larger deals more confidently. Once a rarity, it is now not uncommon to see multiple high-value issuances within a single week. This trend not only bolsters the overall volume but also reassures the market that these mega deals are being absorbed without a hitch.
Another critical trend influencing the current bond market is the timing of the upcoming elections. Historical data indicates that bond issuances tend to peak leading up to election periods, as issuers look to secure financing ahead of any potential market volatility. Gurley points out that issuers are keen to accelerate their dealings to navigate uncertainty, drawing on lessons learned from the turmoil experienced during the 2016 and 2020 election years.
While September witnessed robust activity, there remains speculation about a temporary lull in issuance around the election time, typically during late October and early November. However, as historical data suggests, the pattern may see a resurgence before Thanksgiving and into early December, allowing issuers to capitalize on favorable market conditions post-election.
Further dissecting September’s issuance data reveals a pronounced increase in various categories. Revenue bond issuance surged by 41.6%, while general obligation bonds also saw a noteworthy increase of 50.2%. The competitive sales mechanism, which gives rise to more competitive pricing and potentially better terms for issuers, gained significant traction, witnessing a 101.1% increase.
Moreover, geographic trends reflect this growth story. The state of Texas is leading the charge with $56.138 billion in issuance, followed closely by California and New York. Remarkably, Florida has seen the most dramatic percentage increase, rising by 117.8% compared to the previous year, indicating that the bond market’s vitality is not confined to traditional heavyweights.
As we gaze forward into the remaining months of 2023 and into 2024, it is evident that the bond market is positioned for a dynamic period of activity. Factors such as increasing new-money needs, continued liquidity, and the looming election cycle will undoubtedly shape the landscape of municipal finance. Investors should remain alert to the inherent opportunities and risks posed by this evolving market scenario, as issuers continue to strategically navigate the intricate balance between finance and societal needs.
The potential for setting a new issuance record in 2024 feels palpable, driven by both fiscal necessity and market optimization. The interplay of these various dynamics will warrant close observation as we approach the future of municipal finance.
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