Low interest rates continued to make the summe sizzle in the municipal bond market, with bond sales jumping 38% in August, to $15.62 billion from $11.29 billion the year before, according to figures compiled by Securities Data Co./Bond Buyer.
August sales pushed the new-issue total for the year to $102.92 billion through the first eight months, up to 27% from $80.98 billion a year ago. The eight-month total is the second-highest one on record, exceeded only by the $108.3 billion sold in the January-through-August period of 1986. That year, issuers rushed $30.91 billion of bonds to market in August to beat the Sept. 1 effective date for new restrictions in the Tax Reform Act of 1986.
The new-issue market is getting its inspiration this summer not from tax reform but from interest rates near their lowest levels in more than four years. The average yield to maturity of the 40 bonds used to calculate the Bond Buyer Municipal Bond Index, for example, fell below 7% in August and has reached its lowest level since March 1987, when it hit its all-time low of 6.92%.
The 20-bond index of general obligation yields has declined for 11 consecutive weeks since June 13 and now stands at 6.85% -- close to this year's low of 6.81%, set in February, which was the lowest the index has been since March 1987.
The low rates have drawn both new-money and refunding deals to market in hordes. Refunding issues jumped 32% in the first eight months of 1991, to $23.29 billion from $17.59 billion. New-money financing rose 26%, to $79.63 billion from $63.39 billion a year.
Securities Data's figures are preliminary and subject to revision. The long-term figures are based on securities with final stated maturities of 13 months or longer. Private placements are included, but remarketings of outstanding debt and taxable issues sold by private non-profit organizations, such as private colleges and electric cooperatives, are excluded.
Sales of general-purpose and multipurpose bonds continued to surge, rising 65%, to $30.42 billion from $18.39 billion the year before, and increasing their market share to 30% from 23%. August's four largest issues were all general-purpose sales: $1.2 billion of tax-exempt bonds and $602 million of taxable bonds by California; $706 million by New York; and $654 million by the state of Washington. Three billion-dollar issues now have been sold in 1991 -- $1.26 billion and $1.2 billion by California and $1 billion by New York City --and all three are general-purpose issues.
Education remained the leading specific purpose for municipal financing, rising 14% in the first eight months of 1991, to $18.03 billion from $15.85 billion, although its market share dropped to about 18% from 20% a year ago. The entire increase was in primary and secondary education, where sales jumped 37%, to $11.95 billion from $8.71 billion.
Health-care issuance became the second-leading purpose for the year with a 39% increase, to $11.56 billion from $8.33 billion. Bonds used to finance hospitals leaped 48%, to $10.83 billion from $7.31 billion, which more than offset a 28% decline in bonds for nursing homes and life-care projects, to $729 million from $1.01 billion. Eleven of the 50 largest issues sold in August were for hospitals.
Municipal utilities, the third-leading purpose, rose 36% in the first eight months of 1991, to $10.89 billion from $8 billion. Bonds used to finance electric power projects skyrocketed 83%, to $5.44 billion from $2.97 billion a year earlier. Environmental issues jumped 41%, to $4.39 billion from $3.11 billion, with pollution control leading the way with an 86% surge, to $2.74 billion from $1.47 billion. Bond issuance for public facilities advanced at a 44% clip, to $4.77 billion from $3.31 billion.
Transportation deals rose 3%, to $8.53 billion from $8.27 billion, with the entire increase coming in highways and streets, which rose 37% to $4.08 billion from $2.98 billion. Much of that gain was offset by a 28% drop in airport issues, to $2.19 billion from $3.03 billion.
Only two purpose categories have declined so far this year. Housing issuance was off 20%, to $7.99 billion from $9.96 billion. Industrial development decreased 6%, to $2.63 billion from $2.81 billion.
Taxable municipal bond issuance soared 62% through August, to $2.23 billion from $1.38 billion, led by a $602 million California issue in August that is the largest taxable municipal bond offering ever. Bonds subject to the alternative minimum tax dropped 37%, to $7.64 billion from $12.11 billion, primarily because of sharply lower airport and single-family housing issuance.
Negotiated bond sales rose 25%, to $74 billion from $58.98 billion, while competitive sales increased 34%, to $27.76 billion from $20.75 billion. Private placements were off 6%, to $1.17 billion from $1.25 billion.
General obligation bond sales were up 38%, to $36.29 billion from $26.33 billion, while revenue bond volume increased 22%, to $66.63 billion from $54.64 billion.
Variable-rate financing declined 13%, to $5.83 billion from $6.73 billion. This contributed to a 36% drop in the use of letters of credit, to $4.49 billion from $7.02 billion.
Bonds backed by bond insurance soared 40%, to $30.97 billion from $22.1 billion, and insured bonds' share of the overall market rose to 30% from 27% a year ago. Issues backed by insured mortgages or collateralized by mortgage securities fell 27%, to $2.67 billion from $3.65 billion, again because of the decline in housing bond issues.
Municipal bonds issued by local governments soared 48%, to $45.07 billion from $30.43 billion, and sales by state governments increased about 24%, to $11.26 billion from $9.05 billion. Local authority sales rose 21%, to $17.58 billion from $14.5 billion, while state agency issues edged up 2%, to $26.43 billion from $25.96 billion. Bond sales by public colleges and universities more than doubled, to $2.58 billion from $1.04 billion.
California issuers were the busiest by far in the first eight months, increasing their bond sales 53%, to $16.21 billion from $10.62 billion last year. New York issuers, who led the 50 states through the first quarter, are now an increasingly distant second, with $11.97 bilion, up 5% from $11.41 billion a year ago. The two states together accounted for about 27% of the total volume.
Texas ranked third among the states with $7.39 billion, up 72% from $4.3 billion, followed by Pennsylvania, up 95%, to $6.39 billion from $3.27 billion; and Florida, up 82%, to $5.88 billion from $3.23 billion.
