The Municipal Securities Rulemaking Board (MSRB), the regulatory body that oversees the municipal securities market in the United States, recently released its annual report on the status of the market. The report, which can be reviewed here, offers some fascinating insights into what was a tumultuous year for the market. Our highlights follow:
- Spring Market Dislocation: For about two weeks in March, the market simply stopped functioning. During this period, benchmark yields in 3-, 10- and 30-year bonds increased by 213, 193 and 182 basis points, respectively. However, the recovery was similarly swift, with yields substantially returning to their pre-pandemic levels by the end of March.
- Impact of MLF: The Fed’s Municipal Liquidity Facility (MLF), announced in April and under which Treasury could directly purchase short-term muni debt, was used only in four issues, but it was viewed as an important backstop in settling down the market. Yields continued to fall.
- Record New Issuance: Despite the March slowdown (new issue volume was down 28% compared to March 2019), 2020 saw record muni volume. Overall new issue volume was up 13%, with record supply of $483 billion.
- Taxable Debt Remains Strong: Taxable debt was 30% of the muni market (up from 17% in 2019), due largely to taxable advance refundings. All told, the volume of taxable debt more than doubled in 2020.
- Eds and Meds: A significant amount ($40 billion) of eds and meds taxable debt was issued as direct corporate debt without going through a conduit issuer (and was not counted as muni debt).
- Greater Reliance on Bond Insurance: Use of bond insurance increased dramatically – up 44% from 2019.
- Downgrades Outpace Upgrades: For the first time in at least seven years, rating agency downgrades of muni issuers exceeded upgrades.
- COVID Disclosure: There was a significant amount of COVID-19 disclosure on new issuances and in secondary market disclosures. For the primary market, 64% of all disclosures (the vast majority of which were official statements) received by the MSRB referenced the pandemic. In the secondary market, the MSRB reported receiving over 26,000 continuing disclosure filings related to COVID-19.
With 2020 (finally) in the history books, what will 2021 hold? The public finance lawyers at McNees are prepared to assist issuers and underwriters with anything the market may bring. Contact us if you have questions or need assistance.