ADVERTISEMENT

Investing

Shelved Muni Sales Return to Market After Volatility Eases

(Bloomberg)

(Bloomberg) -- Two municipal bond sales that were previously delayed during a particularly volatile stretch in fixed income markets were offered to investors Wednesday. 

Chicago returned to the $4 trillion state and local government debt market one week later than planned, as did Erlanger Health, a hospital system based in Chattanooga, Tennessee. The sales come after two key economic data releases showed inflation easing — increasing confidence among investors that the Federal Reserve will cut interest rates in September. 

The Windy City had originally planned to issue $643 million in tax-exempt bonds on Aug. 7 but moved the deal to day-to-day status to await a more stable market. Erlanger Health had delayed a roughly $316 million deal on Aug. 8, citing “recent market volatility and yield expectations falling short” of their targets.

On Wednesday, Chicago and Erlanger Health decided to move forward with the debt sales. Both deals follow a report that US inflation increased 3.2% in July from a year ago, the slowest pace since early 2021. The consumer price index data, combined with a similarly soft read of producer prices on Tuesday, calmed markets. 

“The city opted to delay pricing last week due to market volatility and wait for a more stable market tone,” Samantha Costanzo, senior managing director and head of public finance of Huntington Capital Markets, said in an emailed statement Wednesday after the deal priced. Huntington was the lead manager on the Chicago deal. “With PPI and CPI behind us and a relatively light supply week, today offered us that opportunity.”

Benchmark municipal bond yields have been mostly unchanged this week, with those on 10-year, top-rated debt hovering around 2.6%, according to data compiled by Bloomberg. That marks a shift from early August when the measure jumped close to 20 basis points after investors across fixed income markets dialed back a flight to quality bid.

Erlanger Health was able to save “millions of dollars in interest expense by waiting for market volatility to decline,” Lynn DeJaco, the system’s chief financial officer, said in an emailed statement. “The bond offering was significantly oversubscribed, reflecting strong investor demand, while our credit ratings were upgraded with positive outlooks.” 

A spokesperson for Chicago didn’t provide a comment. 

The swings came during a period of heavy sales overall in the municipal market. Long-term state and local government debt sales are up about 36% this year from the same period in 2023, according to data compiled by Bloomberg.

(Updates with statement from health system official in seventh paragraph.)

©2024 Bloomberg L.P.