In its quarterly report on U.S. bond issuance released last week, the Bond Market Association reported that total bond issuance reached $5.48 trillion in 2004 versus $6.81 trillion in 2003. The major contributor to the decline was the drop in MBS issuance, which was impacted by the FOMC's embarking on its program to increase rates in a "measured" manner. Not factoring in MBS, bond issuance was down less than 1% in 2004 from the previous year.
For 2004, mortgage-related securities issuance dropped nearly 43% to $1.76 trillion from $3.07 trillion in 2003. Fourth quarter issuance totaled $410 billion, slightly higher than the third quarter level of $407 billion. Broken down by the various agencies, issuance of Fannie Mae MBS declined 56% in 2004 to $528 billion; Freddie Mac's issuance totaled $365 billion, down 48%; and Ginnie Mae issuance was down 42% to $127 billion. During 4Q04, agency MBS volume was $216 billion, down from the 3Q04's level of $223 billion. Agency CMO issuance also fell in 2004 to $358 billion from $596 billion in 2003. For the quarter, issuance hit $79 billion versus $82 billion in 3Q04. While agency issuance was lower, private label MBS was 12% higher at $387 billion last year. One reason for this, says the BMA, was that with Fannie and Freddie's focus on building capital ratios, non-agency issuers were increasingly able to use the MBS market to fund mortgage acquisitions.
In 2005, the BMA outlook is for mortgage-related issuance to drop another 26%. They note, however, that a pick-up in hybrid securities could cushion some of the decline, while lower long rates at the start of this year could lead to greater-than-expected volume.
While issuance in the MBS market was lower, the ABS market continued to set new records. Overall, U.S. ABS issuance totaled $897 billion in 2004, up 53% from 2003. The BMA noted that the tremendous growth in the ABS sector "reflects the level of consumer borrowing in the last several years." The largest sector in ABS was home-equity, which accounted for nearly 50% of last year's total issuance. The BMA reported that home-equity issuance surged nearly 81% in 2004 to $421 billion. The auto sector, which represents just under 13% of the ABS market, saw a decline in issuance to $68 billion from $79 billion in 2003. The credit card sector, which represents 21% of the market, also fell to $51 billion from $66 billion.
For 2005, the BMA predicts the ABS sector will see strong volume again. In particular, the home-equity sector is expected to have another "stellar" year, while credit cards and autos should benefit from the improving economy as well.
The BMA also reported issuance in other sectors of the taxable fixed income market for 2004. Treasury gross coupon issuance hit $853.3 billion, up 14.5% from 2003 while federal agencies' long-term debt issuance fell 29% to $897 billion. Corporate bond issuance declined 7% to $711 billion, said the BMA.
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