Mega deals, pre-election push, has Street reassessing issuance expectations for 2024
4 min read
Robust weekly issuance has become the norm over the past several months, as pent-up capital needs, dwindling federal aid and front-loaded issuance have prompted state and local governments to come to market in earnest.
The pace of issuance is not letting up, leading some strategists to
HilltopSecurities recently revised its issuance forecast to $480 billion from $420 billion due to stronger-than-expected economic growth. This is the second revision of the year, as the firm raised its forecast upward at the end of January to $420 billion from $330 billion.
Additionally, Municipal Market Analytics now expects issuance to be around $475 billion to $500 billion if it follows 2016’s pattern, up from its initial issuance projection at $425 billion to $450 billion for the year, which is now too low, said Matt Fabian, a partner at MMA.
The
This year is on track to at least best the previous all-time record of $448.6 billion in 2017.
Issuance as of Wednesday is at $345.327 billion, a 32.7% increase over 2023. The Bond Buyer 30-day visible calendar on Monday was at $20.02 billion, the largest in nearly four years.
But following a
The influx in issuance has been helped by the estimated $13.345 billion new-issue calendar this week, which contained three billion-plus-dollar issues from
“Having all those mega deals in one week is unique, but for the most part, each has got a little something different to them,” with most large deals coming before this week’s Consumer Price Index and Producer Price Index reports, said Bryan Derdenger, a managing director and negotiated underwriter at Baird.
Additionally, this week’s calendar is large because everyone wants to issue before the Fed meeting, and next Monday is the only “productive” day of the week, but issuers rarely come to market with deals over $100 million on Mondays, noted Alice Cheng, credit strategist at Janney.
In the primary market Tuesday, Siebert Williams Shank priced and repriced for Washington, D.C., (Aaa/AA+/AA+/) $1.589 billion of GOs, with yields bumped up to 11 basis points from Tuesday’s preliminary pricing, as 5s ranged from 2.46% to 3.26%.
J.P. Morgan held a one-day retail order for $1.5 billion of tax-exempt future tax-secured subordinate bonds, Fiscal 2025 Series C, Subseries C-1 from the New York City Transitional Finance Authority, with 5s ranging from 2.50% to 3.86%.
RBC Capital Markets priced for institutions $1.088 billion of GO refunding bonds, Series of October 2024, for Illinois (A3/A-/A-/), with yields bumped up to six basis points from Monday’s retail pricing, as 5s ranged from 2.91% to 3.49%.
The reception of these deals will be a “good sign” to how the muni market is faring, Derdenger said.
The Washington, D.C., deal should benefit from local reinvestment demand and possible “incremental demand” from D.C. residents who want to swap into D.C.-exempt bonds, said Pat Luby, head of municipal strategy at CreditSights.
The NYC TFA deal should be helped by some lingering reinvestment demand for New York investors, he said.
Meanwhile, the Illinois deal, “given the size of this deal and the size of the new-issue calendar, we expect the new deal to price wide of the benchmark,” he said. Spreads on Illinois showed the five-year 53 basis points to AAA yields while the 10-year was 71 to the AAA curve. Illinois last came to market in early May with $1.8 billion of GOs, as spreads for the five-year 60 basis points to AAA yields and the 10-year 66 basis points to the AAA curve.
The market is set up “with all things being equal to have good participation in all these deals,” Derdenger said, but inflationary prints with an outlier figure could “throw a monkey wrench into everything.”
Even with the drop in The Bond Buyer 30-day visible calendar, the surge in issuance is expected to continue as the market wants to get ahead of the election to avoid unexpected turbulence, Cheng said.
Four out of the last five election years, with 2020 being the lone exception, have seen issuance heavily front-loaded before “petering off” and slowing down in November and December, Derdenger said.
“Issuers are trying to lock in borrowing needs before Nov. 5,” said Chris Brigati, senior vice president and director of strategic planning and fixed income research at SWBC, noting the market will see a slowdown in issuance in late October.
With that decrease in issuance, buy-side interest will also “fall off,” he said.
“The buyers will take a backseat as well as they tend to be a little more cautious,” Brigati said.
However, he expects a week or so after the election, it will be “business as usual,” as interest from the buy-side to “jump right back up once things settle down.”
