Powering Strong Communities

Municipal Bonds: A Strong Market for Public Power, Investors

As utilities consider financing (and refinancing) projects, here’s a look at trends and forecasts for the municipal bond market.

What’s Being Issued

Year over year, municipal bond volume is keeping pace with 2020’s record-setting issues

2020 2021 2022 (forecast)
$484.6 billion $475.9 billion $470 billion

Sources: SIFMA, Bloomberg

 

Comparing the first six months of 2021 to the first half of 2020:

  • Long-term volume was up 10%
  • Tax-exempt volume was up nearly 12%

Sectors with biggest growth:

  • Public facilities 127%
  • Environmental facilities 78%
  • Transportation 49%

Sectors with the biggest decrease:

  • Health care -28%
  • Education -6%
  2021   2020    
Sector Volume Issues Volume Issues Change
Utilities 24,444.2 818 23,074.0 802 5.9%
Electric power 5,817.0 69 5,612.1 66 3.7%

Electric power sector trends from the first half of 2020 to 2021:

  • Refunding volume was down 22%
  • 95% increase in new-money issues
  • Highest volume from local authorities, state agencies, and direct issuers
  • Direct issuer volume up 196%
  • Issues from cities and towns down 24%

Source: 2021 Midyear Statistics, The Bond Buyer

Investor activity

In 2021, investor demand for tax-exempt municipal bonds outpaced supply, which resulted in smaller spreads for investors.

Demand is expected to drop in 2022 if interest rates rise.

Factors Affecting 2022 Market

  • Federal infrastructure funding
  • Reduced need to sell debt due to improved finances
  • Fewer ballot measures approved
  • Low interest rates
  • Low yields for investors
  • Issuer credit quality