How issuance rose 32% in 1H 2024

Issuance surged in the first half of 2024, as drying up federal aid, a resurgence of Build America Bond refundings and front-loaded deals ahead of the election contributed to the rise in volume after two down years.

Total volume for 1H 2024 was $242.162 billion in 4,208 deals, up 32.3% from $183.076 billion in 3,916 deals in 1H 2023, according to LSEG data.

Heading into 2024, most firms believed issuance would surpass the lackluster $384.715 billion of debt issued in 2023. Initial forecast projections for the year featured a wide range, with a high of $425 billion to $450 billion from Municipal Market Analytics and $425 billion from Wells Fargo (WFC) to a low of $330 billion from HilltopSecurities and $375 million from Ramirez.

Near the halfway mark, some firms revised their predictions upward, leading to a much narrower range of issuance, with a high of $460 million from BofA Global Research and CreditSights to a low of $385 billion to $405 billion from Janney.

Part of the surge in issuance came from issuers tapping the capital market after several years due to the inability to no longer postpone long-delayed projects and the drying up of pandemic aid.

Market volatility over the past several years has led to some projects being postponed, contributing in part to the fall in issuance in 2022 and 2023, said Jeff Timlin, a managing partner at Sage Advisory.

And while 2024 has still been "a fairly volatile year in terms of rates going up and down," issuers are forced to tap the capital market to fund long-delayed projects and infrastructure, he said.

"There's a lot of infrastructure and things that need to get done across the board," Timlin said, noting projects can only be pushed off for so long.

Furthermore, issuers have been relying on COVID-19 stimulus money to fund their projects rather than tapping the capital market, said Chris Brigati, senior vice president and director of strategic planning and fixed-income research at SWBC.

However, with those funds starting to be depleted, he said issuers "are at a point where they need to borrow and start paying and funding some of those developments."

Additionally, many issuers pulled their deals forward during the first half of the year, ahead of the November election to avoid expected market volatility associated with it, Brigati said.

The influx of mega deals has also helped the issuance, including the $3.1 billion Brightline deal of low-investment grade and unrated bonds from the Florida Development Finance Corp. and several big healthcare deals, such as $3 million from CommonSpirit Health, $1.9 billion from Novant Health and $1.3 billion from Adventist Health System/West.

Furthermore, some deals in the first half of 2024 were upsized, including the $2.55 billion John F. Kennedy New Terminal One project deal, which was upsized by $1 billion.

There was also a rush from issuers to refund their Build America Bonds through extraordinary redemption provisions during the first half of the year.

The legality of this move was questioned, but it did not stop issuers from coming to market with billion-dollar-plus refundings, such as a $3 billion deal from the Los Angeles School District, a $1.1 billion deal from the Regents of the University of California and a $1.1 billion deal from the state of Washington.

And while BAB refundings continue to be issued following the flurry of deals at the start of 2024, the pace has slowed. This has led market participants to believe their initial estimates of $20 billion to $30 billion of BAB refunding this year to be unachievable.

Issuance slowly ramped up during the first half of 2024, with each month seeing gains month-over-month, starting with $31.771 billion in January and culminating with $48.064 billion in June.

"Issuers like investors started the calendar year expecting the Fed would cut rates late in the first quarter of the year," said Pat Luby, head of municipal strategy at CreditSights. "But when that did not happen, market consensus shifted around."

Several issuers who delayed issuance during the first few months of 2024, hoping for lower borrowing costs, proceeded to come to market in June as the fiscal year ended for most states, he said.

"That provided incentives to go ahead and get into the market, get deals priced, to get financing locked in," Luby said, adding "you can't wait on the Fed forever."

Tax-exempt issuance rose 37% to $214.394 billion from $156.519 billion in 1H 2023. Taxable issuance fell 21.1% to $17.036 billion from $21.589 billion over the same time period, per LSEG data.

New-money issuance increased 19.5% to $164.653 billion from $137.745 billion in the first half of 2023. Refundings were also up 56.6% to $42.579 billion from $27.191 billion in 1H 2023, according to LSEG data.

Bond insurance volume rose 19.5% in 1H 2024 to $18.592 billion in 762 issues from $15.561 billion in 622 issues in 1H 2023, per LSEG data.

Revenue bonds accounted for $159.843 billion in 1,717 issues, a 54.5% increase from 1H 2023, and general obligation bonds ticked up to $82.319 billion in 2,491 issues, a 3.4% increase from 1H 2023, according to LSEG data.

California was the biggest source of municipal bonds in the first half of 2024, per LSEG data.

All issuers in the Golden State accounted for $36.094 billion. Texas was second with $33.153 billion, New York was third with $28.034 billion, Florida followed in fourth with $12.412 billion and Massachusetts rounded out the top five with $9.942 billion.

The rest of the top 10 were: Washington with $7.597 billion, Alabama with $6.567 billion, Illinois at $6.27 billion, New Jersey at $5.925 billion and Colorado with $5.553 billion.