Total new bond issuance in the U.S. was $102 billion year-to-date (YTD) ending May 23, 2014. Tax-exempt municipal bond issuance was $93 billion during the same period. The difference between the two was taxable bond issuance.
Total Bond Issuance ($B)
Tax-Exempt Muni Bond Issuance ($B)
Source: Bloomberg as of May 23, 2014.
As you look at the table above, consider overlaying this data mentally with the recent performance of the municipal indices (below). I believe this provides evidence that may support municipals until issuers regain their “mojo” and begin to bring new municipal bond deals to market in volume sufficient to sate current demand. So far this year, the issuance volume is well behind the average, even for the post-crash era, with no evidence, in my opinion, to suggest an immediate return to the “norm.”
Barclays Index Total Return
3 Months (%)
Municipal Bond Index
Municipal Long Bond Index
Municipal High-Yield Index
Municipal AAA Index
Municipal AA Index
Municipal A Index
Municipal BAA Index
Source: Bloomberg as of April 30, 2014.
The Barclays Municipal Bond Index was up 10.70% in 2011 and 6.78% in 2012, but -2.55% in 2013. To me, this suggests that issuance volume alone may not be the only driver of performance.
The reality check, as we head into the backstretch of the second quarter, is that I believe municipals could continue to perform if what appear to be improving underlying economies and credit characteristics at the state and local levels remain intact. In my opinion, both of these contribute to the demand on a market that seems to be starving for additional supply.
The Barclays Municipal Bond Index covers investment-grade municipal bonds with a nominal maturity of one or more years. The AAA, AA, A, BAA, and long indices are subsets of this broader index. The Barclays Municipal High-Yield Bond Index covers below investment-grade municipal bonds with a nominal maturity of one or more years.