The Securities Industry and Financial Markets Association reported that U.S. bond issuance reached US$4.19 trillion during the first three quarters of the year, more or less in line with the US$4.18 trillion issued during the same period last year.

Issuance of municipal securities, U.S. Treasuries and asset-backed volumes all declined through the first three quarters of the year, but issuance of corporate bonds and higher credit quality and agency mortgage related securities increased, SIFMA reported.

Mortgage related issuance totaled US$1.48 trillion so far in 2006 driven in large part by cash-out refinancing and many homeowners switching from adjustable to fixed-rate mortgages, the association reported. Corporate issuance also increased during the quarter to US$229 billion and is now up more than 30% through the first three quarters of 2006 when compared to the same period last year.

“Overall bond issuance through the third quarter is basically flat compared to a year ago,” said Michael Decker, head of research and policy analysis at SIFMA. “With a mixed economic outlook, rates remaining at historically low levels and Fed policy probably on hold into next year, overall 2006 bond issuance should equal 2005.”

Despite a decrease in mortgage originations during the first three quarters of the year, overall issuance of mortgage-related securities is up almost 3% compared to the same period last year. While the year-to-date volume of mortgage related issuance is up, third quarter volume actually slowed to US$484.9 billion, down 3.4% from the second quarter and 16.4% lower than the third quarter last year.

Corporate bond issuance is also up so far this year, reaching US$748.8 billion through the first three quarters of 2006, a more than 30% increase over the same period last year. The third quarter volume of US$228 billion is a 45% jump from the third quarter a year ago. SIFMA said that the higher issuance levels have been driven by increased business investment spending and various shareholder enhancement strategies such as buybacks and M&A. “While the increased issuance momentum will likely hold for the rest of the year, volume growth could moderate due to a potentially slowing economy. In such an economic environment, M&A and LBO transactions are likely to be a more important source of corporate bond issuance than organic growth,” it added.

After a record year for asset-backed securities in 2005, ABS issuance is down in 2006 to US$674.6 billion, a nearly 20% drop from the US$839.6 billion issued during the same period last year. SIFMA says that this decline is primarily due to the slowing housing market which has reduced issuance of credit sensitive and subprime mortgage ABS. In addition, slower consumer spending growth and weaker auto sales have also contributed to lower ABS issuance totals. “Despite the volume declines, however, issuance of ABS by the end of 2006 will still probably rank as either the second or third highest issuance year,” it said.

Gross issuance of U.S. Treasury coupon securities increased during the first three quarters of the year to US$599.8 billion, yet net issuance of U.S. Treasury bills and coupons declined. The US$110.9 billion net issuance of U.S. Treasury securities in the first nine months of 2006 is a drop of more than 20% from the same period last year. “The divergence in gross and net issuance reflects a reduced budget deficit as a result of stronger than expected tax revenues over the past fiscal year and a higher volume of maturing Treasury securities,” it said.

Issuance of long-term municipal bonds fell during the first three quarters of the year, dropping 14.4% to US$265.3 billion principally because of reduced refunding volumes. “While rising rates in the early part of the year reduced opportunities for cost of capital savings through refunding, new money issuance to fund a variety of development and infrastructure projects is still ahead of last year’s pace,” SIFMA noted. “With the Fed keeping the target Fed funds rate steady since August, increased issuance of short-term of municipal securities is possible during the fourth quarter.”