The municipal bond market experienced a noteworthy decline in issuance during November 2024, marking a pivotal shift in the landscape as the year comes to a close. According to data from LSEG, total issuance plunged to $24.743 billion across 607 transactions, a significant drop of 33% compared to the $36.918 billion seen in November 2023. This decrease is particularly striking as it represents the first year-over-year drop in supply during the year and is below the 10-year average of $32.278 billion. Despite this short-term contraction, projections indicate that total bond issuance for 2024 will break previous records, set primarily by the robust performance earlier in the year.
Factors Influencing the Decrease
One of the primary factors contributing to this month’s low issuance levels is the degree of uncertainty generated by the recent elections and the limited number of pricing days available in November. Tom Kozlik, the head of public policy and municipal strategy at HilltopSecurities, pointed out that several interruptions, including the Federal Open Market Committee meeting and the Thanksgiving holiday, curtailed issuers’ chances to enter the market. The interruptions, spanning the first week—with the election aftermath—and the last week of the month, resulted in lackluster issuance activity, with some weeks recording minimal transactions.
Moreover, Chad Farrington from DWS emphasized that election-related market volatility added a layer of complexity to the issuance landscape. Although issuers managed to secure substantial volumes earlier in the year—culminating in six consecutive weeks of over $10 billion—this pre-election push failed to sustain momentum into November. While volatility is a typical feature of municipal bonds around election time, the immediate aftermath did not result in the anticipated swings, indicating that the market has stabilized in the face of new kinds of uncertainties.
Given the current trajectory, it remains essential to consider the longer-term implications of November’s decline. While issuance plummeted this past month, year-to-date totals still present an impressive picture, standing at $474.755 billion, which is up 32.8% from the previous year. The outlook for December suggests a potential resurgence, with estimates ranging between $20 billion and $30 billion motivated by issuer enthusiasm and the looming risk of changes to the tax-exemption status of munis.
Kozlik projects that the total issuance for 2024 could approach an unprecedented $500 billion, surpassing the 2020 record of $484.601 billion. He contemplates that the importance of the tax-exemption status will drive a last-minute push among issuers, leading to a flurry of activity akin to the mass issuance that transpired in December 2017, right before tax-code changes altered the industry landscape.
The Variability of Tax Policies
Looking toward 2025, discussions around potential tax policy reforms loom large, which could significantly reshape the municipal bond market. The prevailing sentiment suggests that changes could potentially restrict or eliminate tax-exemptions for municipal bonds, prompting issuers to flood the market in 2025 to capitalize on tax-exempt options ahead of anticipated shifts. Kozlik predicts issuance in 2025 could reach as high as $745 billion should substantial policy reform take place, while others, like Matt Fabian from Municipal Market Analytics, anticipate a possible contraction to between $250 billion and $300 billion due to early implementation of tax plans.
The divergence in these forecasts underscores the inherent unpredictability within the municipal bond landscape, influenced heavily by legislative developments and market sentiment.
In terms of state performance, California emerged as the clear leader in municipal bond issuance, accounting for $68.902 billion year-to-date, marking a 31.1% increase from 2023. Texas followed closely with $66.194 billion, while New York secured the third position with $53.513 billion. Notably, Florida showcased an impressive rise with a 103.8% increase in issuance to reach $25.36 billion. These figures reveal that while the November numbers presented challenges, certain states managed to maintain a robust appetite for bonding, indicating that regional variations exist despite overarching trends.
As we advance toward 2025, market participants must remain vigilant in their analysis of trends, powered by both historical performance and potential policy changes. Although November exhibited a downturn, the broader picture of municipal bond issuance remains encouraging, with predictions leaning toward continued growth. Understanding the nexus between market psychology, governmental stability, and economic conditions will be paramount for participants looking to navigate this complex evolving landscape.