How proposed rules, new issuances are impacting the bond industry

The bond markets have undergone significant transformations in recent months, as new technology like artificial intelligence and the shifting economic landscape force issuers and investors alike to navigate new frontiers in debt financing. Between the predictions of industry professionals, and proposed changes in regulations, many firms are forging ahead.

Trading strengthened on July 16 following the release of the U.S. Department of Labor’s consumer price index report for June, as municipal and taxable bond activity surged on growing probability for a rate cut by the Federal Reserve later this year.

Matt Fabian, a partner at Municipal Market Analytics, told The Bond Buyer’s Jessica Lerner that shorter maturities stand to benefit most from a rate cut and are reading as “overbought” and investors seeking to purchase them should proceed carefully. The rest of the curve, he stated, is “very or exceptionally oversold: a good near-term total return opportunity for buyers.”

Markets weathered the growing prospect of Donald Trump being elected to a second term — in the wake of an assassination attempt earlier this month — fairly well. Combined with his announcement of Sen. J.D. Vance, R-Ohio, as his running mate, munis remained constant while U.S. treasuries were weaker.

Other changes in the political realm include current U.S. President Joe Biden’s decision not to seek reelection, instead endorsing current Vice President Kamala Harris as the frontrunner for the Democratic party.

While the race for the White House is still in progress, top officials like Federal Reserve Chair Jerome Powell are staying put — at least in the short term.

The growing significance of technology like AI and the facilities needed to support those industries have seasoned experts eyeing potentially untapped markets for investing.

BlackRock Chief Executive Officer Larry Fink said during a second-quarter earnings call that private capital, “both stand-alone and through public-private partnerships,” will be a crucial source of funding for building the infrastructure necessary to support these changes. Fink cashed in on this bet through the $12.5 billion purchase of Global Infrastructure Partners.

“The opportunity we have in infrastructure is way beyond [what] I’ve ever imagined even just seven months ago when we were contemplating the [GIP] transaction and formalizing it,” he said on the call.

On a local level, Phoenix city officials have decided to reenter the market with their first new money general obligation issuance in roughly 12 years. With the help of Piper Sandler’s underwriting team, they hope to use the funds to improve local infrastructure, such as public safety, streets, storm drainage and more.

Not all have seen the same level of success when it comes to issuance. On July 9, members of the North Carolina Local Government Commission turned down a request from Cabarrus County officials to take out a $228 million mix of bonds for acquiring a building for a human services center and land for a regional behavioral health center, amid other needs.

All the while, issuers are still waiting for a first glimpse at joint rulemaking proposed by a cohort of federal regulators that would significantly change how financial data must be formatted.

Read more about the latest issues facing the bond market and what investors need to know to stay ahead.

“Chevron paints an interesting perspective around the FDTA implementation,” said Emily Brock, director of the federal liaison center of the Government Finance Officers Association.

Donna Alberico

Deadline for first look at FDTA proposal passes

Municipal market issuers waiting for the initial opportunity to view proposed data standards and legal entity identifiers under the Financial Data Transparency Act of 2022 were left waiting, as regulators behind the rulemaking purportedly delayed its release.

The Securities and Exchange Commission, along with the Treasury Department, the National Credit Union Administration and other federal agencies involved in the joint proposal, were expected to publish a Notice for Comment by June 28, but failed to do so. The final rule would require issuers to restructure and digitize their financial data in a machine-readable format, similar to requirements for corporate disclosures.

Current estimates for when any final rulemaking would be released land in December. After all the necessary regulatory hurdles are cleared, the agency would issue its final rule by the end of 2026 to take effect the following year or later.

“It’s joint rulemaking, which means our part is the same as [the other seven federal agencies],” Emily Brock, federal liaison for the Government Finance Officers Association, told The Bond Buyer’s Caitlin Devitt. “It’s only going to go out at the latest point that all of them can agree to. One can’t go before the other.”

JFK airport New Terminal One construction on May 13, 2024

Team behind New Terminal One project at JFK done issuing until 2026

After successfully closing on $2.55 billion of green special facilities revenue bonds late last month, the team behind the New Terminal One project at John F. Kennedy International Airport will hold off on tapping the market until the first or second quarter of the 2026 fiscal year.

Municipal bonds for the project went live in November 2023 and were set to price $1.5 billion, but investor appetite exceeded expectations and the deal was increased by an additional $1.05 billion. Bank of America was the lead underwriter on the deal, while Loop Capital was a co-bookrunner and Barclays a co-senior manager.

Manoj Patel, chief financial officer of the New Terminal One project, told Bond Buyer’s Christina Baker that construction keeping pace with schedule was a driving factor in the overall performance of the deal.

“Our vision is to basically be one of the top five terminals in the world,” Patel said. “But, you know, it’s great to say it. It’s another thing to be able to see it. So I think when investors were able to see it, you know, it really drove that home that this is real. This is coming.”

“We see this merger as beneficial for all our stakeholders,” said Dominic Frederico, president and chief executive officer of Assured Guaranty Ltd.

Assured Guaranty set to merge U.S. subsidiaries

Assured Guaranty Ltd. announced July 8 that it plans to combine both of its U.S. financial guaranty insurers into one organization to provide more capital for supporting its insurance policies and foster further expansion.

Assured Guaranty Municipal Corp. will join Assured Guaranty Inc. effective Aug. 1. Both subsidiaries have AA-plus ratings from Kroll Bond Rating Agency, which confirmed in a statement that its classification would remain unchanged following the merger.

“It will result in more efficient utilization of the combined capital of the two companies, and it will simplify the administration and eliminate duplicative expenses of Assured Guaranty’s U.S. financial guaranty operations,” Dominic Frederico, president and chief executive officer of Assured Guaranty Ltd., said in a press release.

This year, Assured Guaranty Municipal was tasked with insuring $800 million of the $2.55 billion in bonds priced by Bank of America for the New Terminal One P3 at New York John F. Kennedy International Airport, and has been involved in other large deals as well.

The coming energy transition and growth of artificial intelligence will require massive private investment in capital, said Blackrock CEO Larry Fink.

Private capital is door to infrastructure growth: BlackRock CEO

Larry Fink, founder and longtime chief executive of BlackRock, told investors during the firm’s second-quarter earnings call this month that ongoing energy shifts and a growing focus on artificial intelligence are creating significant opportunities for private infrastructure investment.

“There’s a generational demand for capital and infrastructure, including the [need to] finance data centers for AI and for energy transition,” Fink said during the call. “Private capital will be critical in meeting these infrastructure needs, both stand-alone and through public-private partnerships.”

On a more granular level, he estimated that investors will flock toward fixed-income products like exchange-traded funds and alternative assets like infrastructure debt instead of traditional bond funds.

Fink’s remarks follow in the wake of BlackRock’s $12.5 billion purchase of Global Infrastructure Partners, which is one of the world’s largest infrastructure funds. The deal is set to close within the next few months.

“Over six months of feedback of our planned acquisition of GIP [have occurred] and the conversations we’re having with some of the most sophisticated investors worldwide has never been more robust about how we could partner, how we could be trying to develop more things,” Fink said.

Phoenix enters the municipal bond market this week with its first new money general obligation bond sale since 2012.

Phoenix ends 12-year issuance lull with new money GO bonds

The city of Phoenix reentered the bond market with its first new money general obligation issue since 2012.

The $238.8 million deal in which Piper Sandler was lead underwriter, was made up of two types of bonds involving $133.6 million of Series A tax-exempt bonds and $105.18 million of Series B taxable debt. Serial maturities on the bonds are as long as 2047 for Series A and 2032 for Series B.

Kathleen Gitkin, the city’s chief financial officer, told The Bond Buyer’s Karen Pierog that the gap between Phoenix’s last issue and its most recent has led to high expectations for investor demand.

“The feedback that we’re getting from the syndicate is that people are incredibly excited for Phoenix paper,” Gitkin said. “I think there is some pent-up demand.”

The funds generated from the bond program will go toward improving the city’s public safety, street, storm drainage, library, park, arts, culture, economic development, environmental, housing, and human services projects.

This article was originally published by Bondbuyer.com. Read the original article here.