Record bond volume, a deal with climate, more floating-rate debt and broader integration of municipals into fixed-income markets is on the horizon for the general public finance industry.
Those are among the many aspects that may result in market growth in 2025 and beyond, panelists at this week’s Bond Buyer California Public Finance conference said.
The rise in issuance in 2024 has been “really striking,” said Rob Dailey, executive vice chairman and head of public finance at PNC Capital Markets. He noted the market has been more receptive to larger issues in the first, as a record variety of billion-plus deals have cleared the market this 12 months. He doesn’t see that slowing.
As rates of interest proceed to come back down, “we’ll see people reach down the credit scale,” said Andy Nakahata of TD Securities.
“The market’s more receptive to larger issues, and to an awesome degree, I feel there are incentives to go greater,” Dailey said. “You do not get quite the identical execution should you’re going to go smaller, which I see as an additional step in the combination of the municipal bond market with other bond markets, corporate and other taxable markets.”
Dailey, on the opening panel on the San Francisco event, said the market is seeing an “opening up of technique and approach” within the muni space, including the definition of public-private partnerships, which has “continually expanded to the purpose now where we’ve got nearly limitless permutation of what structures work depending on the person circumstances.”
Nevertheless the deals are structured, most prognosticators predict greater than $500 billion of issuance in 2025, noted Gary Hall, president and head of infrastructure and public finance at Siebert Williams Shank & Co., LLC.
Some is being driven by the notion of “aspirational infrastructure, whether or not it’s leveraging federal dollars to create more regionalization or resiliency – because we want to boost sea partitions or have recent sources of unpolluted water – these kind of aspirational mega projects are going to start out to take hold in our marketplace, and we begin to see seeds of that,” Hall said.
Andy Nakahata, director and head of the Western Region for TD Securities, said climate change will play a task in growth.
He thinks California is “taking a really daring step” with its $10 billion climate change bond measure Nov. 5.
“We want real investment there,” Nakahata said. “I feel that is going to be interesting to see whether, one, if it passes, and two, if that becomes a pacesetter nationally when it comes to thoughts and efforts around climate change and how one can take care of what’s really becoming a national crisis.”
Hall said “core infrastructure,” which must be repaired and restored, will result in a part of the expansion. “Everyone knows that we’ve got an aging infrastructure landscape within the country.”
Rhonda Chu, managing director of finance on the San Francisco International Airport, said she understands the importance of taking up debt.
“From my practitioner perspective, we will ride the wave, meaning we have got a variety of investments that we want to finance,” she said. “We will not really time the market and wait for certain things to occur. We have now a longer-term perspective.”
Much of what happens with recent bond volume is dependent upon central bank policymaking, Hall said. “If we get some cooperation from the Fed, and it looks like we may, we are able to have a return of a flood of refinancings,” he said.
“We expect there are an incredible amount of callable bonds in play for the following 36 months,” Hall said.
Once yields begin to fall, there might be a more normalized yield curve, which is able to “broaden out the degree or the scope of monetary products that folks are using, Dailey said. “I expect more variable-rate bonds, for example, to come back back once we get an upwardly sloping curve.”
As rates of interest proceed to come back down, “we’ll see people reach down the credit scale,” Nakahata said.
“Investors want to buy where there are good opportunities, but where they’ll receives a commission for it too,” he added.
Dailey also said the way in which wherein issuers are “telling their story” will help market growth.
“We have had an enormous focus for a very long time on disclosure transparency,” he said.
“There’s an awesome disparity in how some issuers do it versus others, and I feel that we will proceed to push toward a form of more current state-of-the-art standard on that,” he said.
“We’ve not seen the credit cycle hit yet, and that had been predicted for a lot of the past 18 to 24 months. So sooner or later that may turn,” he added.
The nice unknown, panelists said, is how things play out based on whether Vice President Kamala Harris or former President Donald Trump wins the election in two weeks.
“On a macro level, we’re all waiting to see what happens within the presidential election,” Nakahata said. “There are two very different candidates with two very different views, especially in relation to infrastructure.”
Keeley Webster contributed to this story.