Since the mid-1980s, the municipal bond industry has undergone enormous growth and dramatic change. It is fair to describe the municipal debt market as continuing to evolve. As we go to press in early 2008, the municipal bond insurers, long a mainstay of the market with their triple A ratings and 50% market share, face significant financial and rating problems.
There are now more municipals outstanding than ever. According to the Securities Industry and Financial Markets Association (SIFMA), at the end of the third quarter of 2007, the par amount of municipals outstanding was $2,570.6 billion. Because of the lower interest rate environment in the years immediately after the terrorist attacks of 9/11, many older high coupon bonds were refunded at lower interest rates. This resulted in annual new issue volume also reaching new highs. In 2005, $408.3 billion was issued, an all time record. For calendar year 2006, the figure dropped slightly to $383.4 billion, tying it with 2003’s total. By comparison, in the calendar year before 9/11, total new issue municipal volume was $200.88 billion. Trading in the secondary market has also become at times brisk, and “real time” trade transparency for investors and dealers has improved. Chapter 20 in this book describes this in more detail.
The industry also has many new buy-side participants. In addition to the traditional bank trust departments, mutual funds, property and casualty insurance companies, and high-net-worth individuals, ...