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The Securities Industry and Financial Markets Association (SIFMA) today released its 2010 Municipal Issuance Survey. Compiled from responses provided by large and regional municipal bond underwriters and dealers, the report forecasts what type of activity is expected in the taxable and tax-exempt municipal securities market in 2010.
Respondents forecast that $450.5 billion in total tax-exempt municipal securities will come to market next year, a 7.9 percent rise from the $418 billion estimated this year. Increases are expected in both long- and short-term issuance and variable rate demand obligation (VRDO): long-term issuance is forecast to be $347.5 billion in 2010; short-term is forecast to be $68 billion; and VRDO to be $35 billion.
Build America Bonds (BABs) are also expected to continue their strong trend with 2010 issuance forecast to be almost 50 percent greater than 2009 estimates, at $85 billion.
“Despite fiscal difficulties at the state and local levels, the strong issuance forecast underscores the market’s appetite for municipal bonds and the ability of state and local governments to make use of different financing vehicles available to them, including Build America Bonds,” said Randy Snook, executive vice president, business policy and practices, SIFMA. “Having a stable and efficient municipal bond market that helps states and local communities finance important initiatives is a critical component of the financial services industry’s efforts to help grow the U.S. economy.”
A significant number of respondents agreed that the largest issuing use-of-proceeds sector would be general purpose bonds in both 2009 and 2010, with a very small minority expecting transportation or education to be the largest sectors. Issuance forecast risks include the possible extension of the BAB program beyond 2010, the absence of significant additional federal stimulus programs or other federal legislation affecting municipal issuance and the value of tax-exempt bonds.
Interest Rate Forecast
Survey respondents offered relatively uniform views on interest rate trends in the coming year, expecting a gradual rise in early 2010 due to slight inflationary pressures and an improving economy. Forecasts include:
- Two-year Treasury note to yield 1.36 percent by end-June, and 2.0 by year-end; and
- 10-year Treasury note to yield 3.29 percent by end-June, and 4.38 by year-end.
The ratio of the yield of AAA general obligation municipal securities to the 10-year Treasury benchmark is expected to fall slightly, returning ratios to where they were before the credit crisis. At the end of June 2010, respondents forecast the muni-to-Treasury ratio to be 87 percent, and finish the year at 80 percent. Concern over the size of the federal deficit and expected borrowing needs were the risks cited.
You can view a full copy of the SIFMA 2010 Municipal Issuance Survey here or under the “Research” section of the SIFMA web site at www.sifma.org. Additional information about SIFMA’s activities and developments in the municipal securities market can be found at www.sifma.org/muni. For individuals and investors interested in learning more about investing in the fixed-income markets, information can be found online at the SIFMA-sponsored educational website Investing In Bonds at www.InvestingInBonds.com.
