Strong ABS, Muni Issuances Highlight First Half Debt Market Record

August 11, 2003 ( - Municipal and asset-backed securities (ABS) continued their winning ways during the second quarter with continued strong volume of new issues that produced an impressive 29.5% advance over the first half of 2002, according to Fitch Ratings.

In a newly released credit market research report, Fitch said t he public ABS market had $128.2 billion in new second-quarter issues which produced a first half total of $244.9 billion. Home equity receivables accounted for the bulk by far, as nearly half of all ABS issuance in the first half, or $109.3 billion, was derived from this sector, driven by record-low mortgage rates.

Likewise, Fitch said there were $236.8 billion in first-half 2003 municipal bond issues, 19.8% ahead of the same period in 2002. “Both long- and short-term issuance is expected to remain strong as states attempt to thwart existing budget shortfalls,” Fitch researchers wrote. Fitch cited a record $1.7-billion short-term issue by the state of California – intended as a short-term budget fix – as an example of the municipal issuance activity.

According to the report, domestic investment-grade corporate issuance totaled $207.4 billion in the second quarter, off 7.6% from a year earlier, while the first-half total of $457.3 billion, was also down 5.1% from a year earlier. However, high-yield debt totaled a surprising $44.3 billion, more than double 2002 second-quarter issuance.

Generally Fitch cited improving equity markets, quarterly corporate earnings and forecasts, and falling default rates for the debt market’s first-half 2003 performance.

“The moderate improvement in corporate balance sheets and default rates was met with increased investor desire for higher yielding paper, which afforded high-yield issuers broad access to the capital markets,” said Glen Grabelsky, a Fitch managing director.

The report is at .