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New Project Financings Up Despite Overall Drop in Muni Bond Issuance

During the first half of 2006, municipal bond volume decreased 14.6 percent compared to the same period a year ago, according to Thomson Financial, as reported by The Bond Buyer. The overall decline was due to the drop in bond refundings, which became less feasible in light of rising interest rates.

Richard Ciccarone, Chief Research Officer for McDonnell Investment Management, LLC, expects the positive trend in bond issuance for new construction - as well as for refinancing of Gulf States bond issues - to continue for the second half of the year. If interest rates fall by the fourth quarter, as some analysts predict, we may also see an uptick in refinancings, according to Ciccarone.

Housing bond issuance experienced the largest growth in total dollar amount of bonds issued from January through June, due largely to the rise in conventional mortgage rates. When mortage rates increase, loans created by tax-exempt bonds become more attractive to the low- and moderate-income households that they are intended to serve.

Also showing a significant growth rate, bonds issued to fund electric power facilities saw the largest percentage gain (45%) of all category types as pent-up generation capacity received some much-needed relief.

Municipal bonds insured by the financial guaranty companies declined in absolute terms by 33% of all new issues compared to the same time last year. At the same time, the market share of insured bonds dipped significantly to 48% of all new issues compared to nearly 62% for the same six-month period a year ago.

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