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According to a recent report by The Securities Industry and
Financial Markets Association (SIFMA), issuance of new securities in the U.S.
capital markets rose to $3.57 trillion in the first half of 2007, a 10.4 percent increase over the
first half of 2006. Long-term
municipal issuance and corporate credit issuance posted first half
records. ABS issuance declined on
weakness in the lower quality credit mortgage sectors, and global CDO issuance in the first half of the
year increased on a year-over-basis but declined in the second quarter due to
the downturn in the subprime mortgage market and the onset of reduced credit
market liquidity.
Municipal bond
issuance is on pace to break the $408.2 billion record set in 2005, with total
long-term municipal securities issuance totaling $229.4 billion in the first
half of 2007. This represents a record
for a first half and is 28.8 percent higher than the $178.1 billion issued in
the first half of 2006. Strong
refunding volume drove issuance volume higher, contributing 43.0 percent of the
total long-term volume compared to 33.4 percent in the first half of 2006.
“Issuance flourished
in the second quarter as financial market conditions peaked,” said Michael
Decker, senior managing director for research and public policy at SIFMA. “Looking ahead, the second half outlook is
clearly being affected by much weaker market conditions, the result of spillover
from the subprime market, credit risk repricing, and dramatically reduced liquidity
which necessitated recent central bank actions.”
Total net paydown of
U.S. Treasury securities, including bills and coupons, was $12.8 billion in the
first half of the year compared to a net issuance of $66.0 billion in the first
half of 2006. During the first half of
2007, net coupon issuance was $62.2 billion compared to $113.1 billion during
the same period of 2006. The lower net Treasury issuance volumes reflect a
reduced projected budget deficit for fiscal year 2007, which lowered federal
government funding requirements.
Corporate bond issuance set a new record in the first half of the year. Issuance volume rose in the first half to a $647.3 billion quarterly record, a 22.7 percent increase over the first half of 2006. On a linked-quarter basis, the volume increased 12.6 percent to $342.9 billion, up from $304.4 billion and 22.9 percent higher than the $278.9 billion in the second quarter a year ago. Market conditions have weakened significantly since the end of the second quarter, which has affected high-yield corporate bonds particularly hard. Corporate bond issuance, especially high yield issuance, dropped dramatically as a result in July.
The
close of the second quarter marked the first time in the history of equity
underwriting that there has been three straight quarters with over $60 billion
raised. The second quarter total reached $69.4 billion on 250 deals, and the
dollar volume was higher by 8.5 percent on a linked-quarter basis. Equity markets
are also being affected by the credit market conditions, and this effect will
be reflected in third quarter data. Combining corporate debt (straight bonds and
securitizations) and equity underwriting, the securities industry raised $898.0
billion in the second quarter of 2007, down 2.3 percent from the previous
quarter but up 5.3 percent from a year ago based on declines of 13.7 percent in
ABS and 13.5 percent in non-agency MBS affected by subprime mortgage
conditions.
To view the full Research Quarterly, please visit: http://www.sifma.org/research/pdf/ResearchQuarterly0807.pdf
