Housing Bubble
Mortgage-backed securities lead U.S. bond issuance
February 28, 2003
Washington, D.C. - Bond issuance set a record for the second year in a row in 2002 at $5.43 trillion, an 18 percent increase over 2001. Mortgage-backed securities were the biggest gainers in terms of volume at $2.31 trillion while the federal government increased its issuance by 50 percent to $571.6 billion. Historically low interest rates and an increasing federal deficit set the stage for the record year, according to a research report released today by The Bond Market Association.
"Issuers clearly took advantage of low interest rates last year," commented Micah Green, president of The Bond Market Association "but the biggest story might be liquidity. Despite a record amount of issuance, liquidity was never a problem as investor demand was clearly able to handle the supply."
Mortgage-related securities issuance, which includes agency and private-label pass-throughs and CMOs, beat the previous record of $1.67 trillion set in 2001 by 38 percent. The growth in MBS was fueled by sustained low interest rates that contributed to $2.5 trillion in mortgage refinancings in 2002. Private-label MBS issuance increased 43 percent, to $311 billion. Private label issuance in 2001 was $217.3 billion.
U.S. Treasury gross coupon issuance increased to $571.5 billion in 2002, up from the $380.7 billion 2001 total.
Municipal bond issuance also reached a record in 2002 at $430.7 billion, a 26 percent increase over the 2001 total of $342.9 billion, which was also a record. The previous record was set in 1993. Fiscal strains at the state and local level and the low interest rate environment are encouraging both new issue and refunding activity.
"Modest economic growth and a weak stock market combined to finance a larger than expected portion of capital spending in the capital markets," noted Michael Decker, senior vice president of research and policy analysis at the Association. "Low interest rates, which drove refunding activity, also contributed to the increase in issuance of state and local bonds."
The corporate bond market is the only sector that saw a decline in issuance in 2002 dropping 26 percent. Issuance fell to $594.4 billion from $806.9 in 2001, despite a 15 percent uptick from the third quarter to the fourth quarter. Issuance by manufacturers and the telecom industry dropped significantly in 2002, the report notes.
Secondary market trading volume was up across all reported sectors, except the federal agency market.
Source: The Bond Market Association
