December 30, 2010 / 1:51 PM / 10 years ago

Municipalities issued record $429 billion in 2010

CHICAGO (Reuters) - U.S. municipal bond issuance reached a record-high $429 billion in 2010, while taxable Build America Bonds made up 27.4 percent of new deals, according to Thomson Reuters data on Wednesday.

States, cities and other munis issuers sold $117.4 billion of BABs this year, eager to grab a 35 percent federal rebate on interest costs provided by the program, which was created in last year’s federal stimulus act.

With the BABs program expiring at the end of 2010 and no extension coming from Congress, BABs issuance reached nearly $15.6 billion in December, accounting for 38.7 percent of the $40.3 billion of bonds sold this month, according to Thomson Reuters. November 2010 remained the biggest month for BABs since the program began in April 2009, with $16 billion of bonds.

BABs, used to finance infrastructure projects, have been credited with easing access to the municipal market, which was hit hard by the credit crisis.

California and Illinois were the top two issuers of muni bonds and of BABs this year. California sold $10.5 billion of munis, including $5.52 billion of BABs, the data showed. Illinois sold $8.68 billion of debt, including $3.25 billion of BABs.

Both states have been struggling with big budget deficits and have the lowest general obligation debt ratings among the states, at A1 from Moody’s Investors Service.

Total muni issuance this year topped the $406.8 billion of debt sold in 2009 and surpassed the previous record high of $424.2 billion in 2007, according to Thomson Reuters.

Tax-exempt municipal bond prices ended unchanged on Wednesday, ending a two-day downward drift. Top-rated 10-year yields were steady at 3.16 percent, while 30-year yields remained at 4.68 percent, according to Municipal Market Data.

Issuance has ended for the year as the market heads into the New Year’s holiday.

Reporting by Karen Pierog; Editing by Dan Grebler

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