Municipal bond trading volume has reached an unprecedented level, the highest since at least 1995, as a market rout has spurred investors to rebalance portfolios and some issuers to delay new offerings. The surge in trading comes amidst a broader fixed-income selloff, with benchmark 30-year municipal debt yields climbing to 5.18% as of Monday, the highest since January 2011. This represents a substantial increase of approximately 60 basis points within the month. The market's volatility is being attributed to the prospect of further Federal Reserve interest rate hikes and concerns about rising oil prices fueling inflation.
The challenging market conditions have prompted state and local borrowers to put billions of dollars worth of bond deals on hold. For instance, a $1.8 billion bond sale for the Los Angeles Convention Center has been delayed, now on a day-to-day status. Similarly, a $777 million bond sale for the Convention Center Authority of the Metropolitan Government of Nashville and Davidson County and a $1.7 billion bond sale for the New Jersey Transportation Trust Fund Authority have also been postponed. This trend is impacting both new debt issuance and the refinancing of existing debt, as issuers wait for more favorable conditions to avoid "messy market days," according to Samantha Costanzo of Huntington Capital Markets.
The overall market for municipal bonds, valued at roughly $4 trillion, is experiencing significant pressure. Higher yields are deterring issuers, especially those planning to refinance for savings. Kim Olsan, a senior fixed-income portfolio manager for NewSquare Capital, estimates that about $2.3 billion in municipal deals were moved to day-to-day status, with approximately $1.5 billion of that intended for refinancing. Earlier in September, the North Texas Tollway Authority also delayed a $797 million bond sale due to rate movements and volatility. JPMorgan Chase & Co. strategists, led by Peter DeGroot, anticipate a potential $1 billion to $3 billion weekly haircut on overall supply if current conditions persist, indicating the significant impact of the market rout on bond issuance.
