Amid one other document 12 months for bond issuance, cities and states are aware of the potential impression of politics on their borrowing plans.
“In my 34 years of being a banker within the enterprise, I’ve by no means seen this degree of hand wringing on the issuer degree,” stated Matt Boles, managing director at RBC Capital Markets. “There’s a lot of anxiousness and consternation about whenever you entry the market. It comes all the way down to the political pressures we see on the state and native authorities ranges after which nationally [as well].”
Boles’ feedback got here Tuesday throughout the Authorities Finance Officers Affiliation’s “Mini Muni” convention.
The political uncertainty going through cities and states underneath the Trump administration and the fast-rising price of capital initiatives are driving what’s anticipated to be one other document 12 months of municipal bond issuance this 12 months. The menace to tax-exempt municipal bonds throughout the One Massive Lovely Invoice Act negotiations prompted many issuers to hit the market as quickly as potential.
State-level politics are additionally affecting issuers. In Texas, there’s “an unimaginable motion” towards decreasing property taxes, limiting debt issuance and different “fiscal controls that may reduce the burden on taxpayers,” Boles stated.
“The evolution of the political setting with regard to infrastructure …. has pushed the issuers to acknowledge they at all times have to think about the political winds of what’s going on,” he stated.
12 months-to-date
Traditionally, weekly quantity complete round $7 billion to $8 billion vary, stated Patricia McGrorry, a managing director at Ramirez & Co., throughout the GFOA convention. “This 12 months is definitely north of that,” with just below $11 billion for weekly quantity, McGrorry stated.
The rising price of capital plans accounts for a few of the elevated new-money provide, McGrorry stated, a development that she expects to proceed subsequent 12 months.
“The anxiousness is basically pushed by the notion that initiatives could possibly be priced out,” Boles stated. “We very often get the query, ‘Can we speed up our plans? Can we take a distinct strategy to market entry than we have now previously?'” he stated. “The reply is totally different from one sector to a different,” he stated. However typically, “issuers ought to difficulty debt once they want debt. Develop a plan and follow that plan.”
Tom Kozlik, head of public coverage and municipal technique at Hilltop Securities Inc., stated subsequent 12 months’s tempo of financial progress will assist decide the extent of new-money issuance and rates of interest will drive refunding ranges.
“The very last thing … that has actually pushed issuance within the final two years is that total municipal credit score high quality has been very, very excessive,” Kozlik stated.
With federal pandemic stimulus working out, issuers will possible be extra centered on “balancing their revenues with ongoing spending,” he stated.
“I do not assume credit score high quality goes to fall off a cliff like in 2013” after the Nice Recession, Kozlik stated. “However I do assume there’s going to be a bit pullback due to the truth that people are going to be extra cautious about their steadiness sheets,” he stated. “Approaching 2026, I am actually questioning if we will see one other document 12 months subsequent 12 months.”
