(Bloomberg) — States and municipalities sold $142.8 billion in long-term municipal bonds during the first four months of 2024, the most in almost a decade, as the need to borrow outweighed concerns over higher interest rates that afflicted investors in the market.
Most Read from Bloomberg
This year’s surge follows a 20% decline in issuance in 2022 and a flat 2023, according to data compiled by Bloomberg. The amount of borrowing so far is 33.3% higher than last year and the most for the period since $144.3 billion in 2015.
The sales boom runs counter to munis’ performance, with a year-to-date loss of 1.62%, according to Bloomberg indexes. Treasury and other debt markets have dropped as economic data signal sticky inflation likely will push the Federal Reserve to keep borrowing costs at a more than two-decade high.
“The answer is pent-up needs delayed due to thoughts of an earlier Fed pivot combined with capitulation (e.g. psychological acceptance) of higher for longer rates,” said Peter Block, managing director and head of municipal strategy at Ramirez & Co., in an email. “Problems addressed by financings aren’t going away anytime soon, and in fact are getting more expensive every day as inflation remains persistent.”
Read more: John Miller Sees 2024 Muni Sales Hitting as High as $440 Billion
Setting the stage for a sales boost in 2024 was a lighter-than-usual December. The $22.5 billion sold was well below the average of $29 billion sold in Decembers dating back to 2013. This in turn led to a much stronger January, with municipalities selling $31 billion, an increase of 42.7% over the same month in 2023. The market hasn’t looked back since then.
The first four months’ sales were boosted by a record number of billion-dollar-plus transactions. The biggest deal of the year so far was the Los Angeles Unified School District’s $2.97 billion refunding of more expensive taxable debt it had incurred over the Obama-era Build America Bond program. Jefferson County, Alabama, sold $2.24 billion in bonds to refinance debt it sold back in 2013 to emerge from bankruptcy.
During the first four months of 2024, 20 such large deals were sold. In all of 2020, the record year for billion-dollar-plus deals, 26 were sold.
“I think there are two trends at play,” Justin Marlowe, director of the Center for Municipal Finance at the University of Chicago, said in an email. “One is that it’s still a seller’s market,” with investor demand unsatisfied after the previous two low-sales years. “If you’re an issuer, especially an issuer that’s been on the sidelines the past few years, now is as good a time to borrow as any in the past few years.”
Top-rated municipal bonds maturing in 10 years yielded a high of 3.64% in October, after more than a year of the Fed raising interest rates. Investor sentiment that the central bank had stopped raising and would begin cutting rates early in 2024 sparked a powerful rally in fixed-income assets in November and December. Ten-year yields finished 2023 at 2.25% and began Wednesday at 2.78%.
Read more: Worst Returns Since September Show Munis Vulnerable to Fed Talk
“Second, I know some issuers are trying to get ahead of bad news,” continued Marlowe. “Many are looking at gloomy revenue forecasts for Q3, Q4 and beyond,” and that, along with lingering uncertainty about the future of the tax-exemption most municipal bonds enjoy as well as the presidential election, “has put a few deals on fast forward.”
Most Read from Bloomberg Businessweek
©2024 Bloomberg L.P.