Why Muni Mega-Deals Are Smashing Records

Let's have our muni moment right now because borrowing costs and pent up infrastructure demand are just some of the factors driving a boom in the muni bond market. So far this year, there have been a record 27 deals of at least $1 billion, topping the previous high of 26 debt sales of that size in 2020 and its latest outlook. Nuveen says the municipal yield curve is sloping upward and paying investors more for lending for longer. Here in studio for more on today's muni moment is Dan close, the head of municipals at Nuveen. Welcome to New York. Thank you so much. We'll get to that in a second. But let's start off with these mega deals here. Why are these deals so big this time around? Yeah, certainly. I mean, we've seen, as you noted in Joe Myers X comment, 27 deals so far. And this week alone we have Los Angeles Geos, we have State of Washington Geo and also third deal with mask all going and bringing these $3 billion deals. And so there's three primary reasons we're seeing these these mega deals. First and foremost, just we're at a lower interest rate than we were near our local. So end of May compared to where we were compared to where we were in August, September, October of last year. So it's not just the absolute rate issuers in the muni side want to have confidence as far as execution levels go. So not having the range of rates too has given a lot of confidence. The 2nd is we're starting to see a lot of pent up infrastructure that was put off, you know, higher construction cost, you know, not able to come to market at the ideal time. And last and it's an interesting factor really only in munis, but four months out from the election, a lot of issuers want to avoid getting in front of the election. You know, talking to local issuers, talking to bankers, underwriters, there's this desire to not have anything to do with the 2016 election and bring up the issuance as much as you can. So these mega deals are all part of it. But certainly having 30 deals and last week JFK Terminal One had a 2 1/2 billion dollar deal. It's just part of what we're seeing in the marketplace of much larger deals coming and a lot more supply coming compared to the same time as last. Well, Speaking of potential supply coming and you're being in New York City, the city was supposed to start a congestion pricing plan at the end of this month that would have raised a billion dollars in annual revenue and then issue bonds based on that revenue to generate another 15 billion. Now, because Kathy Hulko, the governor of New York, called the whole thing off, there's a pause on it. The MTA says it would have to move up their issuance of debt. What kind of demand do you anticipate for muni bonds from the MTA? Well, it, it is interesting because that congested pricing was going to raise more than a billion. MTA was going to lever that to get 15 billion or so of issuance for longer term capital project rolling stock and the like. But you know, the MTA does have a lot of different funding options. They could go in and they have farebox receipts, They have direct appropriations from the state of New York. They can also go in and they're actually tapping the market this week with a deal that leverages the bridges and tunnels tax from the Triborough. So, you know, they do have other options, but certainly not having that congestion pricing is going to impact their ability to go forward with their capital plans. And we think that they're going to have to go in and use other sources of revenue until which time we see that congestion pricing come back. Does that mean that they would have to pay more as well? I mean, if they if they did come to market with something not having that sort of that, that sort of tailwind of the congestion pricing, not necessarily because the most expensive debt for them is their farebox debt, it's their lowest rated debt. But certainly going and issuing with the Triborough authority gives them some pretty cheap financing because that's a higher rated entity. The congestion pricing I think they're so excited about because generating that billion, you could really lever that and get a lot of lot of capital projects done with that. And we should just be pointed out, and most of the reporting here at Bloomberg at least, is that this is more of a temporary pause for sure, rather than them just scrapping it. That's right. I don't know if you ever ridden the New York City subway, but we need the money. But it's definitely paused through the election. So we're talking until until at least early next year, provided the economy allows for it. How would you advise the MTA to move forward if, if they were to come to you for advice on this? Yeah, I, I would certainly just suggest, I mean, there's a lot of really good things that could come from the congestion pricing. I mean, you have that knock on effect of we would think that more people begin riding public transportation. We would think that we'd have more cars off the street. So there are certainly a lot of very good impacts from this and certainly the MTII think could go in and and get this. They just have to get past this this election.