The public finance industry is on the verge of record bond issuance, a focus on climate change, the expansion of floating rate debt, and broader integration into municipal bond markets.
Panelists at this week’s Bond Buyers California Public Finance Conference said these are among the factors that will lead to market growth in 2025 and beyond.
Rob Daly, executive vice president and head of public finance at PNC Capital Markets, said the increase in issuance in 2024 is “truly amazing.” He noted that a record number of more than 1 billion trades have passed through the market this year, making the market more receptive to bigger issues in the primaries. He doesn’t see it slowing down.
As interest rates continue to fall, “people’s credit capacity will shrink,” said Andy Nakahata of TD Securities.
“I think the market is more receptive to larger issuers and there is an incentive to scale to a significant degree,” Daly said. “If you’re going to scale back, you’re not going to get quite the same execution. I see this as another step in integrating the municipal bond market with other bond markets, corporate markets and other taxable markets.”
Speaking on the San Francisco event’s opening panel, Daly said the market is seeing “an opening up of technologies and approaches” in the public sector, including the definition of public-private partnerships, which are “now continually expanding. There are almost infinite permutations of what structures work, depending on the individual situation.”
Gary Hall, president and head of infrastructure and finance at Siebert Williams Shank & Co. LLC, said most forecasters expect more than $500 billion in 2025, regardless of how the deal is structured. He pointed out that the amount of issuance is predicted.
Some are driven by the concept of “aspirational infrastructure,” whether leveraging federal funds to increase regionalization and resilience, the need to build seawalls, or new This kind of ambitious mega-project will be launched due to the need to ensure clean water sources. It has established itself in our market and is starting to show its buds,” Hall said.
Andy Nakahata, director and Western regional head of TD Securities, said climate change will play a role in growth.
He believes California is “taking a very bold step” with its Nov. 5 $10 billion climate bond.
“There needs to be real investment there,” Nakahata said. “One, if this bill passes, two, will we become national leaders in terms of thinking and addressing climate change and how we deal with what is truly becoming a national crisis? I think it will be interesting.”
Hall said some of the growth will come from “core infrastructure” that needs repair and restoration. “We all know that the infrastructure in this country is aging.”
Rhonda Chu, San Francisco International Airport’s managing director of finance, said she understands the importance of taking on debt.
“From my practice perspective, we’re going to ride the wave, which means there’s a lot of investment that needs to be financed,” she said. “We can’t time the market and wait for certain things to happen. We take a long-term view.”
Hall said what happens with new bond issuance will largely depend on central bank policy decisions. “If we get some cooperation from the Fed and that’s possible, we could see a lot of refinancing come back,” he said.
“We believe there will be a significant amount of callable bond issuance over the next 36 months,” Hall said.
Daly said that once yields start to fall, a more normalized yield curve will emerge and “the extent and range of financial products that people will use will increase. For example, more floating rate bonds will emerge. I’m anticipating that.” Return when the curve is upward. ”
As interest rates continue to fall, “people’s credit scale will shrink,” Nakahata said.
“Investors are looking to buy where there’s good opportunity, but they’re also looking to buy where they can get paid for it,” he added.
Daly also said the way issuers “tell their story” will help the market grow.
“We have long valued transparency in disclosure,” he said.
“There are significant differences in the way some issuers do things versus others, and we will continue to push towards something like a more up-to-date standard in this regard,” he said. Ta.
“We haven’t seen the credit cycle arrive yet, and it has been predicted for most of the last 18-24 months, so at some point that will change,” he added.
Panelists said the big unknown is how things will play out depending on whether Vice President Kamala Harris or former President Donald Trump wins the election in two weeks.
“At a macro level, we are all waiting to see what happens in the presidential election,” Nakahata said. “We have two candidates with very different views, especially when it comes to infrastructure.”
Keeley Webster contributed to this article.
