That time of year is upon us. The temperature is hot, the pools are open and the bbq’s are ready for grilling. While most people are just excited to have an extended weekend, some might glance over why we have this Friday off. Well, this coming Saturday, is the 4th of July and America will be celebrating her 239th year of independence, which is pretty impressive. Speaking of impressive, and since this is a municipal bond based website, I thought it might be interesting to find out exactly how old municipal bonds are. Interestingly enough, the first ever usage of a municipal bond was recorded in 1812. At that time, the City of New York issued a general obligation bond for the construction of a canal. While the exact amount of the first bond sale is hard to determine, what is certain is that New York City continues to be one of the largest issuers in the municipal marketplace.
Back to the present...
This was a week that was dominated by headlines both global and domestic, which we wrote about earlier in the week. Fortunately, the markets have calmed a bit with sentiment leaning toward a possible agreement on terms from Greece. Additionally, the Puerto Rico Electric Power Authority made its full $415 million bond payment that was due on Wednesday, thus avoiding a default. The commonwealth’s leaders also pledged to reach an all-encompassing restructuring plan with creditors by the end of August. Whether this will happen is yet to be seen, but will be a situation that we will monitor in the coming months.
By the Numbers
Some of the flight to quality movement that dominated Monday and Tuesday began to slowly unwind over the past two trading days. Notable economic news released this morning, which included payrolls, jumped 223,000 in June; just a bit shy of “whisper” numbers in the market place. Conversely, average hourly earnings actually had a slow down to less than 2% growth for the month of June and unemployment dropped to 5.3%, mostly due to a decrease in the participation rate. With the Fed looking for signs of strength in the underlying economy in order to achieve liftoff in September, these decidedly unimpressive stats, combined with uncertainty in the Eurozone make two rate hikes in 2015 a bit uncertain
The Bottom Line
This week also represents the end of the second quarter, and more importantly the first half of the year. With that being said, a bit of municipal issuance recap is in order. Between January and June of 2015, total net issuance for the municipal market was $217 billion compared to $154 billion for the first half of 2014. The almost 40% increase in issuance was driven by our low rate environment and partially due to expectations of Fed rate increases later in the year. To prove this point, out of total issuance, bonds sold for purposes of refunding/defeasement saw a year-over-year increase of almost 86%. Overall supply should see some abatement in the second half of the year, with a lot of bonds in the refunding pipeline having already been underwritten.