Municipal bond issuance, spurred by unabated demand and significantly lower interest rates, continued its meteoric climb to record levels in the first half of 1992, soaring 51%, to $113.12 billion from $74.69 billion a year ago, according to figures compiled by Securities Data Co./Bond Buyer.
At its current pace, the municipal market would finish 1992 with $226 billion in sales, easily surpassing the $207 billion record set in 1985.
Bond sales have been strong all year, setting records for each month from January through June. The first half ended with a bang, as sales jumped 61% in June to $26.56 billion, the fourth-largest month on record. Only the $59.08 billion in December 1985, the $31.29 billion in November 1985, and the $30.87 billion in August 1986 were higher.
The number of bond sales rose a smaller but still substantial 15% in the first half, to 5,901 issues from 5,145 the year before.
Market analysis attribute this year's explosive growth to lower interest rates, which have fed, and in turn been fed by, an unrelenting demand for tax-exempt income.
Municipal yields, as measured by The Bond Buyer's weekly indexes, have fallen to their lowest levels in nearly 13 years. The 20-bond index of general obligation yields fell 88 basis points in the 12 months ended July 16, to 6.16% - its lowest level since Aug. 16, 1979. The 30-year revenue bond index, which began Sept. 20, 1979, fell 84 basis points during the past 12 months, to a record low of 6.33%.
"There's a lot of money pointed to our market because of the large amount of bond calls, the ridiculously low rates in short-terms, money rolling over from certificates of deposit," said George Friedlander, a managing director with Smith Barney, Harris Upham & Co. "We've been able to absorb a shocking amount of volume without batting an eye."
Investors' persistent clamor for bonds also has tempted numerous issuers to market, said Robert Chamberlin, senior vice president of municipal research/marketing with Dean Witter Reynolds Inc. "The length of the process of rates gradually coming down has brought in a multitude of issuers who might not have otherwise sold bonds in the market," he said.
Refundings Lead the Way
Mr. Chamberlin pointed to the first half's 18% rise in new-money issues, to $65.64 billion from $55.48 billion a year ago, as indicative of just how strong the lure of low rates has been.
This year's charge has been led, however, by refunding bonds, which soared 147% in the first half, to $47.49 billion from $19.21 billion a year ago. More refundings already have been done this year than in all of 1991, when $46.13 billion was brought to market.
Issuance rose sharply for virtually every purpose. General-purpose and multipurpose issues, the largest sector, rose 55%, to $30.33 billion from $19.53 billion. This group included a $1.39 billion California general obligation issue on Feb. 19, the fifth-largest bond sale on record and the largest competitive sale ever.
Education continued to be the leading specific purpose, jumping 49% in the first half, to $20.81 billion from $13.93 billion a year ago. Sales for primary and secondary schools rose 49%, to $13.99 billion, and student loan bonds tripled, to $2.27 billion.
Transportation issuance surged 99%, to $12.46 billion from $6.26 billion a year ago. Bonds for toll roads, highways, and streets led the surge with a 152% increase, to $5.46 billion, and airport issuance doubled in volume, to $3.35 billion.
Bonds sold for utilities, the third-leading purpose, rose 43%, to $12.05 billion from $8.45 billion, as water and sewer issues rose $2.36 billion, or 32%, and combined utility sales jumped $1.22 billion, or 254%.
Public Facilities Slip
Health-care volume climbed 45%, to $10.75 billion; housing skyrocketed 81%, to $10.15 billion; electric power increased 34%, to $5.91 billion; industrial development posted a 61% rise, to $3.67 billion; and environmental issues were up 10%, to $3.47 billion.
Public facilities, which include government facilities, jails and prisons, and recreation, were the only purpose to decline from a year ago, slipping 4%, to 3.52 billion from $3.65 billion.
Negotiated offerings surged 64%, to $87.12 billion, and accounted for 77% of the volume. Competitively bid sales rose a solid 22%, to $24.69 billion, while private placements gained 6%, to $1.32 billion.
Bonds subject to the alternative minimum tax jumped 39%, to $8.14 billion, mostly because of sharp increases in single-family mortgage bonds and airport revenue bonds. Taxable deals soared 63%, to $2.34 billion.
General obligation issues surged 61%, to $42.28 billion, and increased their share of the market to 37.4% from 35.2%. Revenue bond sales gained 46%, to $70.84 billion.
The use of bond insurance to enhance municipals surged 68% in the first half, to $39.62 billion, and boosted insured bonds' market share to 35% from 32% in the same period a year ago. Bonds secured by insured mortgages or collateralized by mortgage securities rose 46%, to $2.49 billion. But bonds backed by bank letters of credit decreased 7%. to $3.7 billion, despite a 67% lump in variable-rate financing, to $7.87 billion.
Municipalities and local authorities were the busiest issuers in the first half, but state government issues increased 52%, to $12.19 billion, and state agency sales jumped 73% to $32.3 billion. Bonds sold by municipalities rose 49%, to $48.9 billion, and local authority sales posted a 35% increase, to $17.79 billion. Bonds sold by public universities and colleges declined 4%, to $1.94 billion.
While long-term bond sales were soaring, short-term note issuance dropped 18% in the first half of 1992, to $17.58 billion from $21.35 billion the year before. In June, traditionally the note sector's busiest month, sales dropped 29%, to 7.72 billion from a record $10.94 billion in June 1991.
Education, the leading specific purpose for note issues, plunged 43%, to $2.12 billion. General purpose issuance, the largest sector, dropped 4%, to $14.54 billion.
Securities Data's figures are preliminary and subject to substantial revision. May's bond volume, for example, was revised to $18.26 billion, up more than $2.5 billion from the initially reported figure of $15.74 billion.
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