The bond markets were really open only 3 1/2 days this past week because of the Passover-Easter holidays. After barely a rustle on Thursday morning, the market died until word of the budget comprise gave it a boost. Although the Treasury market was rather inactive during the week, the municipal market had to deal with a hefty $1.4 billion of new issues. One issue alone -- the Northern California Power Agency -- was $624 million in size. This was an issue that had everything -- serial maturities, long-maturities (or term bonds), current coupons (as well as original issue discount coupons), maturities insured by AMBAC, maturities backed by bank letters of credit, with some maturities being rated BBB while other maturities were rated AAA. In short, a bond for all investors.
Looking back on the first quarter, we realize that the bond markets absorbed a lot of new debt. The Treasury raised $37.3 billion of net new money from all its financings. Of that amount, $5.1 billion came from T bills, while the remainder, $32.2 billion, was raised in the coupon area. That compares with a much larger $56.4 billion of new cash that was raised during the second quarter of fiscal 1984. Of that amount, $20.9 billion was raised through T bills and $36.3 billion through coupon issues.
Total financing of new long-term tax exempts was $20.9 billion during the first quarter of 1985. Of that amount, 65 percent were revenue issues. That compares to the $14.5 billion of new issues sold during the first quarter of 1984, of which 60 percent were revenue bonds. The 1985 figure is misleading because the 1984 volume was held down as the market awaited congressional action permitting it to issue industrial development bonds, such as housing issues. The new-issue volume exploded during the second half of 1984 after legislation was passed in June authorizing the further issuance of industrial development issues.
Some $4.8 billion of the new $20.9 billion of muni issues that sold this year were for the purpose of refunding bond issues that were sold in the earlier 1980s with higher interest rates. Housing issues totaled $3.7 billion, as did public gas and electric issues. Also significant last quarter was the amount of short debt sold. About 20 percent of the new issues were sold with "put" tender options that allow buyers to put the issue back to the issuer within 1 to 3 years. For the buyer, this is a hedge against rising rates.
The fixed income securities sold in the corporate market last quarter were up 37 percent over last year, $11.9 billion versus $8.6 billion. It is also worth noting that the stock market during the first quarter saw the issuance of equities double to $4.24 billion, while convertible bonds tripled to $1.4 billion over the same period in 1984.
If rates go lower, bond financing will continue heavy, but should rates rise substantially, only the Treasury will continue to borrow heavily, needing to raise about $150 billion of net new money during the last three-quarters of the year.