MUNICIPAL DEBT MANAGEMENT FROM THE BUYER’S PERSPECTIVE

[Pages:39]MUNICIPAL DEBT MANAGEMENT FROM THE BUYER'S PERSPECTIVE

July 16, 2019

Association of Public Treasurers of the United States and Canada

Oklahoma City

Marie Autphenne Managing Director Senior Muni Credit Analyst

(415) 616-8924 marie.autphenne@

Intended for Institutional Clients Only See Page 39 for Important Disclaimers & Disclosures

AGENDA

Section 1 Section 2 Section 3

Broad Overview of The Municipal Bond Market The Credit Landscape Surveillance

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OVERVIEW OF THE MARKET

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MUNICIPAL BONDS HAVE MANY FUNDAMENTAL CREDIT STRENGTHS

Taxable and tax-exempt munis can offer relative value, diversity, and high credit quality.

States and municipalities can't go away. Large and diverse tax bases. Monopolistic nature of municipal utilities. Intercept and receiver programs. Covenants and other legal protections.

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MUNIS REMAIN A RELATIVELY SAFE ASSET CLASS Nearly 20% of outstanding munis are rated AAA and 80% are investment grade. Municipal bankruptcies and defaults remain the exception, not the rule.

Moody's Cumulative Default Rates, Average over the Period 1970-2017 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

Municipals 0.02% 0.04% 0.05% 0.07% 0.09% 0.10% 0.12% 0.14% 0.15% 0.17% Corporates 1.54% 3.06% 4.46% 5.67% 6.70% 7.57% 8.33% 9.00% 9.64% 10.24%

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MUNIS REMAIN A RELATIVELY SAFE ASSET CLASS Municipal Defaults by Sector, 1970 - 2017: ? 10 municipal defaults recorded by Moody's in 2017; 7 were related to Puerto Rico. ? Housing and healthcare account for 60% of all municipal defaults.

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CURRENT MARKET

? 2018 muni bond issuance = $338.9 billion, well below 2017's $448 billion.

? Lowest level of muni issuance since 2013

? 2017 tax reform (Tax Cuts and Jobs Act of 2017) removed ability to issue taxexempt advance refunding bonds. ? This created a wave of issuance in late 2017.

? SIFMA Survey Forecast expects $317 billion in muni bond issuance for 2019

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MUNICIPAL LONG-TERM ISSUANCE

? Long-term municipal new issue volume was down 22% in 2018 compared to 2017, but it is up 4% through the first four months of 2019.

Municipal Long-Term Issuance

70

$ in billions

2016

2017

2018

2019

YoY %

January

$25.741 $36.005

$21.505

$24.674

15%

60

February March

31.759

23.360

17.895

26.223

47%

42.530

32.616

26.084

27.079

4%

50

($in billions)

April May

35.510

30.474

31.516

22.624

-28%

42.713

38.541

35.147

40

June

48.577

39.232

33.388

July

29.292

24.867

27.740

30

August

46.734

37.201

34.042

September

40.405

29.442

25.220

20

October

53.447

38.530

36.585

November

31.665

43.575

27.846

10

December Total

18.881 $447.252

62.502 $436.345

21.965 $338.932

0

4%

Source: The Bond Buyer

Monthly Long-Term Municipal Issuance

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