May issuance surges 47%, well above 10-year average

Issuance surged in May as Fed policy uncertainty, pent-up capital needs and mega deals helped volume top $40 billion for the month, the first time since 2016.

May’s volume stood at $43.957 billion in 866 issues, up 46.9% from $29.919 billion in 802 issues in 2023. This is above the 10-year average of $35.896 billion.

Total issuance stands at $191.353 billion year-to-date, up 33.5% from 2023, making issuance in 2024 the “strongest” in a decade, said Matt Fabian, a partner at Municipal Market Analytics.

May volume in particular “surprised on the high end and it has been one of the fastest starts to the year historically,” said James Pruskowski, chief investment officer at 16Rock Asset Management.

Issuance looks to be on pace to potentially hit $450 billion or near that in 2024, he added.

“Greater rate stability, waning federal aid, growing uncertainty about when (and if) the Fed will cut rates owing to stickier than anticipated inflation, and concern over the election and future tax policy are, in part, catalyzing borrowers to access the municipal market,” Fabian said. “And for some others, delayed borrowings for capital plans are resuming.”

Several factors boosted issuance in May, the biggest of which is market participants’ accepting the “psychological hurdle” that rates will not return to where they were, said Peter Block, managing director and head of Municipal Strategy at Ramirez.

Due to this, issuers with deferred and new-money needs, are tapping the capital markets after realizing that “life goes on,” he said.

Mega deals help supply, which included in May $1.8 billion of GOs from Illinois in the negotiated market and $1.8 billion of future tax-secured subordinate bonds from the New York City Transitional Finance Authority in the negotiated and competitive markets.

Some issuers come to market with these large deals more frequently, like Illinois and the many New York City authorities, Block said.

However, other issuers have mega deals that have been in the works for years, such as $2.243 billion of sewer revenue warrants from Jefferson County, Alabama, and $3.1 billion of Brightline Florida Passenger Rail Project revenue bonds from the Florida Development Finance Corp. from earlier this year, he noted.

There are also “perfect” financial conditions with ratios lower than historical averages and the tax-exemption on a relative basis much cheaper versus taxable, Block noted.

Issuance will remain elevated for the coming months, including June, historically the second highest monthly volume after October, Pruskowski said.

The new-issue calendar for the first week in June climbs to $14.4 billion, “the highest weekly level since record tax-reform induced issuance in December 2017, J.P. Morgan strategists said in a daily report.

However, there is still “considerable supply overhang, and we see more choppy supply weeks ahead,” given the Fed meeting and Consumer Price Index release on the second week of June and the Juneteenth holiday on the third week, they noted.

“The CPI week is expected to have a greater impact than the FOMC meeting, both of which occur on the same day,” likely accelerating issuance and leading to a “brisk start” in June, Pruskowski said.

Pruskowski said he thinks issuers are “largely ignoring holiday-shortened weeks, a shift from what the market is accustomed to.”

Tax-exempt issuance was at $38.438 billion in 761 issues, a 42.3% increase from $27.008 billion in 702 issues a year ago. Taxable issuance rose 118.1% to $3.679 billion in 97 issues from $1.687 billion in 87 issues in 2023. Alternative-minimum tax issuance rose to $1.84 billion, up 50.2% from $1.225 billion.

New-money and refunding volumes both increased. The former rose 51% to $31.106 billion from $20.597 billion, while the latter increased 19.9% to $6.011 billion from $5.014 billion.

Issuance details
Revenue bond issuance increased 51% to $28.885 billion from $19.124 billion in May 2023, and general obligation bond sales rose 39.6% to $15.072 billion from $10.795 billion in 2023.

Negotiated deal volume was up 65.5% to $36.332 billion from $21.949 billion a year prior. Competitive sales increased 20.6% to $7.479 billion from $6.203 billion in 2023.

Bond insurance fell 13.5% to $3.944 billion from $4.561 billion.

Bank-qualified issuance rose 15.3% to $950.8 million in 255 deals from $824.9 million in 241 deals a year prior.

In the states, the Golden State claimed the top spot year-to-date.

Issuers in California accounted for $30.909 billion, up 39.9% year-over-year. Texas was second with $25.252 billion, up 11.1%. New York was third with $23.234 billion, up 91.4%, followed by Florida in fourth with $11.32 billion, up 131.4%, and Massachusetts in fifth with $6.48 billion, a 135% increase from 2023.

Rounding out the top 10: Illinois with $6.052 billion, down 21.7%; Alabama with $5.616 billion, up 63.6%; Washington with $5.553 billion, up 62.3%; New Jersey with $5.479 billion, up 55.2%; and Virginia with $4.56 billion, up 60.6%.