SIFMA forecasts 9 pct rise in US municipal bond issuance in 2013

WASHINGTON Fri Dec 21, 2012 12:16pm EST

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WASHINGTON Dec 21 (Reuters) - Issuance of U.S. municipal bonds will likely rise by 9 percent to $458 billion in 2013, as investor demand for the debt sold by states, local governments and other public groups remains strong, the leading market organization said on Friday.

In its annual survey, the Securities Industry and Financial Markets Association found that issuers will likely sell $65 billion in short-term notes next year, compared with $55.6 billion in 2012, and $393 billion in long-term debt, compared with $364.7 billion this year.

The group also forecast issuance of long-term alternative minimum tax bonds to rise to $13 billion. Variable-rate demand obligation issuance will likely increase, as well, to $15 billion from a 20-year low of $11.9 billion this year, SIFMA said.

Throughout 2012, yields in the $3.7 trillion municipal bond market have scraped record lows, prompting issuers to sell new debt and also refinance existing bonds. The lower interest payments have not driven away investors, though.

"With the country's economy slowly, but steadily recovering, we're continuing to see a strong appetite for municipal bonds among investors," said Michael Decker, managing director and co-head of SIFMA's Municipal Securities Division, in a statement. "Our forecast remains highly dependent upon the outcome of the fiscal cliff negotiations and the fate of the tax-exempt status in the tax reform debate coming next year."

The threat to the exemption given taxpayers for interest paid by municipal bonds has grown stronger in the last few months, with members of Congress suggesting capping the exemption during negotiations on the "fiscal cliff."

While the federal government is seen likely to reach a deal to avert the automatic tax increases and spending cuts that make up the cliff, many in the municipal bond market expect the desire to shrink the deficit will bring the threat to the surface again in the new year.

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