The new-issue analysis carried out by Municipal Market Data Inc. of Boston points out several interesting facts. This analysis covers the 5-year period from 1980 through 1984. The most apparent factor is the dramatic increase in financing that has occurred in all categories. Total financing alone has jumped from $46.9 billion in 1980 to $93.3 billion in 1984 -- a gain of 98.9 percent. Hospital issuance is up 61 percent; housing up 44 percent; private-purpose -- pollution-control, revenue and industrial-revenue bonds -- up 252 percent; electric utilities up 120 percent; water and sewer issues up 60 percent; and the catch-all miscellaneous sector (state and local general obligations, transportation issues, etc.) is up 114 percent.
Dick Dobbins, the president of Municipal Market Data, attributes the growth to several factors. First, the decline in interest rates since 1981 has spurred issuers into the market. Further, the decline in rates from the high-interest-rate environment of 1981-'82 has caused issuers to refund with lower interest rates many of those issues that were marketed during 1981-'82. This refunding type of financing no doubt will contribute to a large portion of this year's new-issue volume.
Next, as Congress wrestled with new laws to curtail the issuance of private-purpose bonds and housing issues as well to force the registration of new issues marketed after mid-1983, issuers, feeling the urgency of the situation, marketed many more issues than they otherwise would have done. Lastly, with the flood of new issues, investment bankers developed new financing techniques to attract buyers. Among these techniques were the use of insurance, the use of zero coupons and put bonds, plus the inauguration of variable-rate bonds whose interest rates floated, or changed, as interest rates fluctuated. All these innovations had a marked influence on the volume of long-term bond financing.
Another interesting point revealed by the chart is the way in which the volume of issuance in each sector may have changed over the 5-year period. Although the percentage of issuance in some sectors remained relatively stable over the period -- water and sewer issues consistently have been in the range of 5 to 7 percent of the total annual financing -- other sectors exploded in different years for a variety of reasons. As an example, the amount of PCR/IRB issues sold remained in the 9- to 11-percent range for most of the time, but concern over proposed legislative restrictions in 1984 expanded their issuance to 16.3 percent. The same fears of restrictive legislation caused housing issues to explode to 21 percent of the total bonds issued in 1984. These conditions led to an interesting, and sometimes volatile, market.
This week begins a two-week period that will witness the issuance of $1.2 billion of high-grade and mostly general-obligation issues. Names that will be marketed are the States of Georgia, Hawaii, New Jersey, South Carolina, Massachusetts, California, New Mexico, Missouri and Ohio, and Fairfax County, plus many others. This deluge of high-grades has caused the yield spreads between revenue and high-grades to narrow. In an effort to upgrade one's holdings, it would make sense to take advantage of the narrow spreads and to sell revenue and purchase GOs. This is a trade that can be reversed after the spreads have widened once again.