The Bond Market Association (BMA) stated today in its latest research quarterly that new bond issuance continued to climb through the first quarter of 2003, increasing 35% from the same period last year. The federal government and issuers of MBS led the way.
The federal government pushed issuance by 60% while MBS issuers drove issuance by 48%. The government issued an increased amount of Treasury securities to finance the expanding federal budget deficit. Meanwhile, borrowers boosted MBS through refinancing and the buying new homes.
New mortgages and refinancings boosted MBS issuance to a total of $786.7 billion in the first quarter of this year, a 44%increase from 1Q 2002 ($547 billion issued during the first quarter last year). The steep increase reflects the impact of historically low interest rates. However, this increase becomes much more modest when compared to the previous quarter. During 4Q 2002, new issuance was $773.8 billion — activity rose only 4.6 %.
Meanwhile, outstanding ABS surged by 21% compared to the 1Q of 2002 when $110 billion were issued. This was caused in part by strong demand for secure debt instruments with a higher yield than Treasuries, stated the BMA. A total of $133.6 billion in ABS came to market in 1Q 2003.
Michael Decker, the BMA’s senior vice president for Research and Policy Analysis, said that whether it's MBS or ABS the securitization market is still showing remarkably steady growth. “This is a form of financing that continues to make sense to and be embraced by issuers,” he said.
Municipal bond market issuance increased as well. This growth reflects the need for state and local governments to finance capital spending during the current fiscal crisis. Tough fiscal times at the state and local level is partially responsible for the increase in municipal bond issuance, which is up 22% to $91.5 billion over last year's 1Q showing of $75 billion.
New Treasury issuance climbed to $157.4 billion in 1Q 2003, up from $98.5 billion during the same period last year. The corporate bond market remained relatively stable in the first quarter compared to last year. Issuance totaled $192.8 billion, which is a half percentage point gain over last year. The numbers, however, mask strong activity in the first two months of the quarter when issuers rushed to market ahead of the war in Iraq and a slowdown as hostilities began.
The report also said that secondary market trading was up across all sectors in the 1Q with the exception of the municipal market. Long-term federal agency debt totaled $344 billion in the 1Q 2003, while short-term agency debt outstanding went up by 1.5% to $678 billion. Outstanding money market instruments, including commercial paper (CP) and large time deposits and bankers' acceptances (BA), reached about $2.53 trillion outstanding at the end of the 1Q.