Bond Bits: Burned Out

After a bond-issuing party in 2005 that led to record volume of more than $408 billion, the municipal market got off to a slow start in 2006. Bond volume through the end of February was just under $40 billion--a 25 percent drop in issuance from a year ago, according to data from Thomson Financial.

That is the slowest start to a year of borrowing since 2001, when just under $34 billion was sold.

There are a variety of reasons why issuers are dragging their heels. Overall, it appears that so much debt was sold last year that governments, hospitals, universities and transportation systems are being kept busy spending all that money.

Muni bond yields didn't jump up much in the first two months of the year either, compared to where they were at the same point in time in 2005.

Meanwhile, interest rates are expected to climb this year, but the only evidence of rate changes affecting the muni market is in the housing sector. There, rising rates in the mortgage market have been turning home buyers to tax-exempt mortgage programs. The result is that housing is the only muni-bond sector where borrowing has increased so far this year--rising almost 68 percent over the same period last year.