Buy Side

It’s Unanimous: Munis Are a Good Bet, RBC Capital Markets Survey Says

Meredith Whitney must not have been in the room.

According to survey results released Wednesday, when RBC Capital Markets asked 100 state and local government experts at The Bond Buyer Texas Public Finance Conference last month whether they would buy municipal bonds for their own portfolios, all 100 said yes.

Allegations of group-think notwithstanding, the survey is the latest piece of evidence of the near-unanimity with which municipal credit professionals reject discussions of wide-scale municipal defaults.

More than 80% attributed the negative perception of the municipal market to heightened media coverage, as opposed to poor disclosure, unfunded pension liabilities, or excessive debt. Only 37% of respondents thought municipal bond defaults would increase at all this year.

Based on the survey results, muni professionals are more optimistic today than they were four months ago. When asked how long it would take for state and local government revenues to return to pre-crisis levels, 27% said two years. In a similar survey conducted in October, only 3% said it would take two years.

Respondents who thought it would take five years declined to 23% from 46%.

“We are seeing increasing evidence of strong organic growth in tax receipts,” Chris Mauro, director of municipal research at RBC, said in a statement. “Public finance professionals are growing more confident about the state of the economy and the positive impact this will have on state and local government finances.”

Muni tax receipts as of the end of the third quarter were still down 3.1% from their peak in the fourth quarter of 2008, based on the rolling four-quarter totals.

Adjusting for the state and local government rate of inflation provided by the Bureau of Economic Analysis, though, receipts are down 6.2%. Inflation-adjusted tax receipts are still lower than they were in 2005.

Still, recent quarters have shown some improvement. Tax receipts in the third quarter were up 5.2% from the third quarter of 2009. The rolling four-quarter total was up 1.8% from the near-term trough a year earlier.



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