published: 11.15.03

Research Quarterly

U.S. Bond Issuance Stays on Record Pace

New issue activity in the U.S. bond markets stayed on its record pace through the first three quarters of 2003 and ahead of the same period in 2002. Issuance totaled $5.38 trillion, up 40.3 percent from the $3.84 trillion issued during the same period in 2002. The strong debt issuance reflects the low-interest-rate nvironment, fiscal stimulus, increased corporate investment, and poor state and local government fiscal conditions through the first half of 2003. During the third quarter, issuance volume was affected by a changing market environment of rate volatility and generally increased yields, a strengthening economy and rising funding costs. Total issuance volume increased through the third quarter in all market sectors. Strongest growth was in the mortgage-related securities sector which continued its surge through the quarter.

Despite the increase in mortgage rates, the mortgage-related market continued strong and has already exceeded full-year 2002 issuance. Though rates may very well rise by year-end, we expect a less turbulent market environment for the balance of the year compared to the third quarter when sharply rising rates and  associated mortgage market hedging strategies affected both the mortgage and Treasury markets. isuance activity through year-end will depend on the pace of economic growth.