U.S. municipal-bond issuance in 2020 was the highest in a decade, reflecting the collapse of interest rates and the increased costs cities and state governments are facing from COVID-19 shutdowns.
The Wall Street Journal reported on Wednesday.
Bonds for new projects reached 252 billion U.S. dollars last year, according to Refinitiv, a global provider of financial market data and infrastructure.
This has been a small increase from the previous year and the highest since 2010, when a federal incentive programme helped push the total above 270 billion dollars.
The new borrowing has driven the total amount of outstanding municipal debt above 3.9 trillion dollars for the first time since 2013, according to the Federal Reserve data from the third quarter.
The municipal-issuance boom is unlikely to abate as cash-strapped local governments struggle to make up for ongoing COVID-19-related shortfalls and pay back old debts, said the Journal.
Before the pandemic, many city and state governments had already been operating on tight budgets.
In spite of the increase in availability of municipal bonds, investor demand remains strong.
Central-bank rate cuts have left investors clamoring for yield. Municipal-bond investments produced steady returns in 2020 in a low-interest rate environment.
“There’s no yield anywhere so municipals are still attractive on a relative basis,’’ Jon Barasch, director of municipal evaluations at financial analytics company ICE Data Services, was quoted as saying.
The Federal Reserve’s commitment to low rates suggests the cycle of investors buying bonds to get much-needed yield and municipalities issuing debt to get much-needed cash or refinancing to cut borrowing costs is set to continue for the long haul, added the Journal.