Richard Drew, Associated Press
NEW YORK — Municipalities are borrowing at the slowest pace in more than two years, showing how the partial federal shutdown and prospect of a U.S. default are dissuading localities from taking on financing for new projects.
Cities and states are offering $4.3 billion of bonds this week after $3.7 billion last week, when the U.S. government shutdown began, data compiled by Bloomberg show. Excluding holidays, it's the skimpiest stretch of financing since May 2011, even as benchmark muni-bond yields have fallen from a two- year high.
As the political stalemate persists, supply may dwindle further. San Francisco and a school district in Utah are among issuers that may shift sales scheduled for Oct. 17, the day U.S. borrowing authority lapses. The ebbing tide of new bonds is echoed in diminished trading: Volatility on benchmark 10-year muni yields has dropped close to a 10-month low.
"Without new issues to give a little bit of price discovery, offers are drying up, bids are getting quiet, and when you add in the politics, the shutdown and the debt ceiling, it seems like people are sitting on their hands," said Dan Toboja, vice president of muni trading at Ziegler Capital Markets in Chicago. "I would almost call it complete malaise."
The federal gridlock is exacerbating a drop in local financings as interest rates have risen from generational lows seen in December. Cities and states have issued $233 billion of fixed-rate long-term debt through Oct. 4, down 15 percent from the same period last year, data compiled by Bloomberg show.
Municipalities planning their financing amid the standoff in Washington have to consider the potential impact on market interest rates and the economy. The Treasury Department has said any U.S. default from failing to raise the $16.7 trillion federal debt limit could have catastrophic consequences that might last decades.
The Sevier County School District in Utah, with about 4,500 students, has a $36 million bond sale set for Oct. 17. Proceeds from the competitive deal will go toward building a high school. Patrick Wilson, the district's business administrator, said he has talked with his financial adviser about possibly changing the date.
"I have a little bit of concern" about selling the day of the debt-ceiling deadline, he said in an interview. "The market could be pretty wild."
The federal government's first partial shutdown in 17 years began Oct. 1, halting a rebound in the municipal market fueled by the Federal Reserve's surprise decision in September to maintain the pace of its monthly bond buying.
Ten-year benchmark muni yields have barely budged over the past two weeks, fluctuating just 0.02 percentage point, Bloomberg data show. Volatility has tumbled, deadening the market swings that generate trading opportunities. For 10-year yields, 60-day volatility is close to the lowest since December, data compiled by Bloomberg show.
A stable muni market is uncommon in October. Benchmark 10- year muni yields have jumped about 0.24 percentage point on average in the month since 2009, Bloomberg data show.
"The market is quiet right now, and that's pretty rare, especially in October," Toboja said.
The federal government shutdown has slowed other fixed- income markets too. Corporate bond sales in the U.S. have dropped to $15.2 billion this month from $48.1 billion in the year-earlier period, according to Bloomberg data.
"Underwriters are very hesitant to advise issuers to come to market during somewhat unsettled times," said Bart Mosley, co-president of Trident Municipal Research in New York. The shutdown and debt-ceiling debate are "keeping investors from feeling like they have to take action, which has led to subdued activity."
- System failure to blame for delayed Saturday...
- 5 trends beneath the surface of Nov. jobs report
- Weber State center helping to improve auto...
- 3,000 Workforce Services clients may be...
- Walmart's 20 best-selling Black Friday items
- Sugar House streetcar prepares for public launch
- Jobless claims drop to near 6-year low
- Cedar Hills to require business licenses for...
- Fast-food strikes return amid push for... 31
- Obama declares health care law is... 21
- Intermountain Healthcare offering... 15
- Jobless claims drop to near 6-year low 10
- Obama to feds: Boost renewable power 20... 6
- DeseretNews.com reaches page view... 4
- Cedar Hills to require business... 4
- Collecting online sales tax puts Utah... 3