National Outlook Conference: Survey says taxables, ESG hot topics in 2020

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Taxable bonds are expected to remain a large presence in the municipal bond market this year as total issuance rises, according to a survey of market participants attending The Bond Buyer’s National Outlook Conference in New York Tuesday.

The survey panel was moderated by Laura Porter, managing director at Fitch Ratings, and included Vikram Rai, head of municipal strategy at Citigroup; Nicole Riggs, vice president at MUFG; Rick Kolman, managing director at Academy Securities; Michael Stern, executive director at the New York City Comptroller’s Office; and William Glasgall, senior vice president at the Volcker Alliance.

In a live market panel, 31% of participants said they expect total municipal issuance for 2020 to be between $425 billion and $450 billion, 24% said between $450 billion and $475 billion, 16% said between $400 billion and $425 billion, 12% said between $375 billion and $400 billion, 12% chose between $475 billion and $500 billion and 6% said more than $500 billion.

When asked what portion of that total issuance would be made up of taxables, 34% of the respondents said it would be 20%, 32% said 25%, 17% thought it would be 15%, 16% said 30% and 1% thought it would be 35% or more.
"I think right now we are seeing taxable issuance for the wrong reasons," Rai said. "Taxable refundings don't make sense. They just don't."

He said that issuers want to lock in low rates now so as to avoid higher rates in the future, but he said there was no catalyst to push rates higher.

"It boggles my mind that we have had a 20-year bull market and even now issuers want to lock in low rates," he said.

"But the math just doesn't make sense," Rai said, adding that it surprises him that some issuers don't want to wait to do a current refunding that could save more money later on.

Regarding climate change and cybersecurity spending, 52% said spending by issuers will increase by 5% above overall budget spending while 34% said it would increase in line with overall budget spending, 8% said it would not be an important factor and 6% said it would remain flat.

In a related question, 68% of respondents said that municipal issuers will incorporate environmental, social and governance practices into their disclosure practices this year while 32% didn’t think so.

In another question, respondents thought that municipal bond spreads will remain unchanged this year, according to a survey of market participants.

The live market survey, sponsored by Fitch Ratings, showed that 44% thought spreads would stay the same as last year while 31% thought they would narrow and 25% said they would widen.
Looking at GDP, 38% saw growth of 1.80% in 2020 with 26% choosing 1.50%, 23% picking 2.00% and 13% seeing 1.25% or lower.

With regard to the yield curve, 38% expect it to remain unchanged, with 32% seeing it becoming flatter, 27% expecting it to steepen and 3% seeing it to "become another shape."

Looking at credit sectors, 31% said higher education would be under the most pressure in 2020, followed by 26% who said healthcare and hospitals, 9% who chose cities and counties, 7% said utilities, 4% picked states and 22% who chose all of those sectors.

And with respect to rating changes, 47% saw a relative balance between upgrades and downgrades while 35% saw more upgrades ahead while 18% exacted more downgrades than upgrades.

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Primary bond market Secondary bond market Green bonds ESG Monetary policy
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