(Bloomberg) -- For Beth Coolidge, the record pace of municipal bond sales this year means only an occasional day off rather than week-long vacations. The head of public finance at Oppenheimer & Co. isn’t complaining.
“You have to be available when the work is available, because we did see a drop in issuance the last few years,” she said. “You don’t want to take a week off because you feel like you are going to miss something.”
Most bankers and investors say the crush of new deals is unlikely to ebb until after Election Day on Nov. 5. State and local governments are motivated to complete borrowing for infrastructure and other projects before a new president and Congress add the potential for market volatility.
Muni debt sales are up almost 40% to $349 billion so far this year, with market participants handling volumes of at least $10 billion in 15 separate weeks, according to data compiled by Bloomberg. By yearend, total sales will reach $450 billion, according to a Sept. 4 report from Ramirez & Co.
The boom marks a turnaround for the muni sector, traditionally a more-stable but less lucrative market than corporate debt. While issuance spiked during the 2020-2021 pandemic years, investors liken this year’s market to 2017.
That’s when states and municipalities hurried to sell debt before the Tax Cuts and Jobs Act took effect. It banned the sale of a popular cost-savings tool — tax-exempt bonds for advanced refunding of debt.
Muni issuance dropped in 2018 partly because this type of offering went away. In the past two years, annual sales have slumped to about $360 billion, spurring some Wall Street banks to shrink public finance teams.
Citigroup Inc. and UBS Group AG abandoned the business, opening the door for competitors, including regional firms, to grab issuer clients. Coolidge, who previously served as head of Midwest public finance for UBS, said the cyclical nature of the market prompts firms to cut back, but added she may need to increase hiring if issuance keeps rising.
“All of a sudden volume is back up,” she said. “It’s roaring back.”
The abundance of new offerings is giving investors lots of buying opportunities — and due diligence.
Working Weekends
Dennis Derby, a portfolio manager for Allspring Global Investments LLC, said he spent hours reading through half a dozen bond filings during a recent weekend to prepare for more than $14 billion in sales last week.
“Investors are leaning on their research staff to sift through and prioritize the heavy concentration of new sales through a short window of time before the election,” he said.
Also motivating investors is the chance of snagging higher yielding debt as the Federal Reserve begins a much-anticipated rate-cut cycle. The US central bank announced a half-point rate reduction on Wednesday.
The “relentless” supply of deals, even through the usually low-key summer months, created “a great environment to invest, a true bond pickers’ market,” said James Iselin, managing director at Neuberger Berman Group.
Busy Calendar
There’s almost certainly a lot more to come. Belvia Gray, principal and municipal adviser with Baker Tilly’s public sector practice, expects “a very busy calendar through the end of the year” in part because the Biden administration’s pandemic-era aid to municipalities is running out.
“Many units of government have been spending American Rescue Plan Act funds and the deadline to obligate those ARPA funds with contracts is the end of this year,” she said. “Now that those funds have been spent, they are moving back to their traditional methods of financing projects.”
At Hilltop Securities, the forecast for total 2024 muni sales recently was raised to $480 billion from $420 billion.
“Yes, there is a lot of travel, and the workload is strong,” David Medanich, Hilltop’s co-head of public finance, said in an emailed statement. “But we would not have it any other way.”
(Updates with Federal Reserve rate cut in thirteenth paragraph.)
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