Sales of new municipal bonds jumped 27% in this year's first half, to an all-time high of $144.76 billion from $113.76 billion in the first six months of 1992, according to Securities Data Co.
The volume was the second largest for a calendar half on record, surpassed only by the second half of 1985, when issuers bombarded the market with $148.46 billion of bonds in anticipation of stringent tax reform.
Bond issuance barely slowed in June from May's rapid pace, dipping to $27.87 billion from a revised $28.01 billion total for the previous month. It marked the first time that volume exceeded $20 billion four months in a row.
June's volume represented a relatively modest 5% increase over the same month a year ago, when $26.48 billion of bonds flooded the market as interest rates reached their lowest levels in years.
Refundings showed some signs of slowing slightly last month, dropping to $16.3 billion from $18.14 billion in May and accounting for 58.5% of June's volume, down from the range of 64.4% to 72.7% that persisted from January through May. Even so, refundings total $95.23 billion for the year to date, up 71% from $55.6 billion a year ago.
"June was extremely impressive," said Robert Chamberlin, senior vice president of municipal research and marketing at Dean Witter Reynolds Inc. "We all looked for a dropoff in refundings. But even so, with these low rates, it still brought out more deals. June was much stronger than expected."
"We've become used to monthly volume of $20 billion to $30 billion," said George Fischer, a portfolio manager with Fidelity Investments. "And even though we had $28 billion [in new issues] in June, it was hard to buy bonds. And as refundings slow, we're going to have a bond shortage. When will that happen? In some states they already have a shortage, such as in New Jersey."
New-money deals remain well off last year's pace. falling 15% in the first half, to $49.52 billion, or 34% of the volume, from $58.17 billion and a 51% share in 1992. In June, new-money deals dropped 22% from a year earlier, to $11.57 billion from $14.86 billion.
"There are a finite number of refundings that can be done," Fischer continued. "All of a sudden we'll have issuance at half of what it has been, and municipals will be much richer to taxables than they are today."
Another market analyst said he believed that as sales wind down in the negotiated sector, which accounts for the bulk of large refundings, initiatives will be taken to bring new money into the market.
Negotiated deals rose 33% through the first six months, to $116.55 billion from $87.71 billion in the first six months of 1992. Competitive issues, after spending the first part of the year on the downside, have rebounded to rise 13% in the first half, to $27.29 billion from $24.24 billion.
"All you have to do is take a look at what's going on with your bank-qualifieds," Chamberlin said. "They are the core of your competitive markets." Bank-qualified deals were up 23% in the first half, to $8.32 billion from $6.79 billion.
Another contributor to the resurgence in competitive sales was the continuing comeback for education financing. School and college bond sales rose 11% through the first six months, to $22.95 billion from 20.62 billion, and regained the top ranking among specific purposes. In June, education issuance rose 18%, to $4.89 billion from $4.15 billion.
All but two of the specific purpose categories showed increases through the first six months. The exceptions were housing, which plunged 42%, to $5.98 billion from 10.38 billion, because of a 55% drop in single-family issuance; and industrial development, which fell 20%, to $3.3 billion from 4.15 billion.
Among the other categories, electric power continued to roll higher, rising 157%, to $17.01 billion from $6.61 billion; utilities jumped 57%, to $18.59 billion; transportation rose 21%, to $15.39 billion, health care increased 42%, to $15.37 billion; public facilities soared 73%, to $6.65 billion; and environmental facilities climbed 20%, to $4.3 billion.
The use of bond insurance to enhance municipals continued to rise faster than overall volume -- leaping 44%, to $57.03 billion. or 39% of the first-half volume, from $39.74 billion and a 35% share in 1992.
Bonds backed by bank letters of credit plunged 16%, to $3.9 billion from $4.62 billion. Bonds secured by insured mortgages or collateralized by mortgage securities plummeted 70%, to $984 million from $3.32 billion.
Securities Data's volume figures are preliminary and subject to substantial revision. For instance, May's figures were increased considerably since they were first published in The Bond Buyer on June 2, to $28.01 billion from $25.14 billion.