Primary issuance through June is likely to be around 60% higher than it was over the same period in 2011, industry analysts predict.
But they differ on the nature of new issuance over the next six months. Some see new money recovering during the second half of the year, while others say interest rates will remain low and the environment at state and local municipalities will continue to discourage new projects.
Joe Deane, executive vice president and head of munis at PIMCO, said that the heavy refunding activity should continue through the end of next year if rates hold their range. “Our market needs a pickup in new-money new issuance to balance out retiring assets,” he said, “and we think that will happen.”
Rob Williams, director of income planning in the Schwab Center for Financial Research at Charles Schwab, doesn’t see evidence the refunding trend will change during the rest of 2012. The state and local revenue climate has been tight, he added, and there’s still a relatively low appetite for issuance for new projects.
Chris Mauro, head of U.S. municipals strategy, at RBC Capital Markets, expects the ratio of refundings to new money will remain elevated throughout the remainder of 2012.
Also, the amount of bonds still eligible for refunding in 2012 stands at $250 billion, he said, so heavy refunding should continue over the next six months.
However, he also estimates that new money in the second half of 2012 will be at least as large it was over the first six months. “The second half of the year typically accounts for 52% of annual new money issuance,” he said, “with 30% of it coming in the fourth quarter.”