New bond sales plummeted 58% in April, to $9.28 billion, as a vicious bear market forced refunding issuers to flee and kept most other issuers at bay.
Bond yields jumped to the highest levels in more than a year last month, following three recent increases in the Federal Reserve Board's target range for the federal funds rate.
The high-rate atmosphere sparked a bond sell-off and drove issuers away - plunging new-issue sales to less than half of April 1993's $22.18 billion volume and the lowest level for any month since October 1990, when $8.26 billion was sold. As a result, bond sales for the year to date total only $59.34 billion, down 34% from $89.49 billion in the first four months of 1993.
"It's not surprising," said George Friedlander, managing director of portfolio strategy fixed-income for Smith Barney Shearson Inc. "When you have a month of sharp, severe erosion in market conditions, the deceleration of issuance will increase. There were a lot of potential deals that didn't go because rates became too high. Plus you had issuers who, if they were not urgently in need of funding, said, ~Why don't we just take a look at this and see if the market stabilizes?'"
The higher rates choked off refundings, which plunged to $1.56 billion in April 1993 and down 54% from $3.38 billion in March. Issues that contain both new-money and refunding bonds collapsed to $308 million last month, less than one-tenth the $4.57 billion figure for April 1993 and compared to $3.95 billion for March.
One rousing note was sounded, however, in the new-money sector, which continued to show increased issuance from last year's levels. New-money deals increased 34% in April, to $7.42 billion from $5.54 billion in April 1993. Through the first four months new money volume has risen 25% to $33.96 billion, or 57% of issuance, from $27.13 billion, or 30% in the year-ago period.
"I would like to believe that this [April] is the exception," said Robert Chamberlin, senior vice president of municipal research and marketing at Dean Witter Reynolds Inc. "I think these numbers designate a weakness in the market. But the new money continues to be the bright spot. Our ultimate hope is to continue pumping new money into the market, and it's likely it will pull itself up by its own bootstraps."
Only two specific purpose categories, housing and public facilities, showed gains last month.
Housing issues jumped 64% in April, to $865 million from $528 million a year ago, and pushed year-to-date volume to $3.91 billion, up 10% from $3.56 billion in the first four months of 1993. Among last month's largest issues were a $227 million California Housing Finance Agency single-family issue and a $108 million Virginia Housing Development Authority multifamily issue.
"The reauthorization to issue mortgage revenue bonds wasn't reinstated until August," noted Vincent Barberio, senior vice president with Fitch Investors Services. "So you're comparing a normal month with one that didn't have the issuance. Also, April tends to be a heavier month for housing issues because of spring borrowing for the single-family home programs. And with the threat of rising interest rates, housing agencies may be trying to lock in now."
Bonds issued to finance public facilities projects, such as jails, government buildings, convention centers, and parks, jumped 20% last month, to $613 million from $510 million in April 1993. Two of the largest issues sold last month were for prisons: a $317 million Texas Public Finance Authority deal and a $125 million Ohio Building Authority issue.
Issuance for education, generally the largest specific purpose, plunged 51% in April, to $1.99 billion from $4.06 billion a year earlier. Through the first four months of the year, bonds sold for education purposes are down 6%, to $12.35 billion from $13.15 billion.
The steepest dropoff in financing, however, has been in electric power, a sector dominated by refunding issues for a number of years. Bonds sold to finance public power projects have plummeted 78% so far this year, to $2.78 billion from $12.44 billion in the first four months of 1993.
Bond issues won through competitive bidding were up about 8% so far this year, rising to $18.14 billion, or 31% of total new issuance, from $16.85 billion, or 19% in the same period a year ago.
The use of bond insurance to enhance municipals has declined 32% in the year through April, to $23.27 billion from $34.39 billion. However, insurance's share of the overall market remained steady at 39%.
Issuers in New York State were the most active in the nation during the first four months of the year, marketing $7.66 billion through April, up 13% from the $6.77 billion they sold in the 1993 period. California was the second most active state, bringing $7.51 billion to market, down 32% from $11.06 billion a year ago. Following California were Texas, with $4.66 billion, down 15%; Pennsylvania at $3.65 billion, off 19%; and Florida at $3.47 billion, a 38% drop.
Securities Data's bond volume figures are preliminary and subject to substantial revision. For instance, March's bond volume figures have risen to $17.02 billion from $15.94 billion on April 25, when they were last published in The Bond Buyer.