Muni Debt Sales Set to Surge to Four-Year High Ahead of Election
(Bloomberg) -- States and local governments are poised to sell debt at the fastest clip in four years as borrowers aim to get ahead potential volatility from the US presidential election in November.
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Municipal bond issuers like cities and school districts have already teed up $21 billion of debt sales over the next 30 days, the highest visible supply since October 2020, according to data compiled by Bloomberg. That index represents a fraction of what actually comes to market, given that deals are often announced with less than one-month’s notice.
“This is all in response to the election this year,” said Kyle Javes, head of municipal fixed income at Piper Sandler Cos. He said that borrowers remember the market disruption that followed prior presidential elections and are eager to avoid any major swings. “We have been advising all of our clients to make sure that they get their transactions in ahead of the election if they have needs to borrow,” he said.
The local governments join a surge in global debt sales with money managers eager to buy bonds before the Federal Reserve starts cutting rates, a process that can begin as early as this month. At least 81 high-grade bonds launched or completed within 48 hours this week while more speculative-grade firms launched over $17 billion of deals via the high-yield bond and leveraged loan markets on Tuesday. Issuers see a window where yields are relatively low now and before any election-related market volatility upends current levels.
“We’ve seen a lot of interest rate increases over the last couple of years and it’s been difficult,” said John J. McCarthy, Jr., treasurer of Wakefield, Massachusetts, a town north of Boston that is selling about $104 million of debt next week. “It appears the interest-rate environment is improving and we’re hoping to take advantage of that by going to the market.”
Munis sales broadly have surged to $327 billion so far this year, a 38% increase from the same period last year, data compiled by Bloomberg shows. In August, governments brought roughly $50 billion to market, the biggest month of issuance since October 2020, before voters took to the polls in the last presidential election.
“It’s convenient for us that we’re going to market now as opposed to closer to the election,” said Joe Mathews, chief financial officer of Hennepin County, Minnesota, which is selling $200 million of top-rated bonds on Sept. 10. He said that while timing of the sale is consistent with its budget cycle, getting ahead of the election provides more “predictability.”
For investors, the supply surge is creating a more attractive entry point. Tax-exempt, 10-year benchmark muni yields are trading at about 71% of comparable Treasuries, the most since November. That figure, known as the muni-Treasury ratio, is a key measure of relative value — meaning as it increases, munis look more attractive by comparison.
Sweta Singh, a portfolio manager at City Different Holdings LP, said that investors are “clamoring for new deals” before the pace of sales slows down in November. “You want to lock in that higher yield,” she said.
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