Coronavirus most compelling issue to 92% of muni analysts, Hilltop survey says

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To no surprise, the COVID-19 pandemic was overwhelmingly the most important issue or trend facing the municipal bond market, according to Hilltop Securities’ April survey of 211 muni credit analysts.

Tom Kozlik, Hilltop’s head of municipal strategy and credit, prepared the survey. It is the sixth annual survey for Kozlik, who joined Hilltop in April 2019 after two decades as a managing director with Janney Montgomery Scott and PNC Capital Markets.

According to the survey, 92% of the analysts and specialists contacted between April 16 and April 27 found coronavirus the most compelling issue facing the public finance sector. The pandemic has halted the U.S. economy, disrupted the muni bond market and has imposed unprecedented financial strain on cities and states.

Pubic pensions remained a key concern to analysts as well, ranking second in importance. Though according to Hilltop, 51% of analysts placed that sector among the top five, down from 85% last year.

“The presence of public pensions as the second most important issue, in the midst of the current once-in-a-generation worldwide pandemic, emphasizes how vital the concern remains to municipal analysts,” Kozlik said.

The remaining top five all relate to COVID-19, Kozlik added. They include liquidity levels (44%); municipal default potential (42%) and federal government relief/stimulus.

Defaults were not even included in last year’s survey.

Analysts are scrutinizing Washington, with 61% citing a “great deal” or “a lot” of risk that the federal government does not allocate enough relief for state and local governments. Almost one-third of credit analysts think $600 billion of additional relief is necessary to have a neutral effect on state and local government credit.

Kozlik said 77% of respondents are buy-side analysts or a combination buy-side analyst, trader and/or portfolio manager.

The survey revealed that senior living (60%), mass transit (45%) and higher education (43%) are most at risk as a result of the current economic downturn.

Almost three-quarters, or 72%, of analysts consider a primary- and secondary-market U.S. Federal Reserve municipal bond-purchasing policy is or will be necessary.

More than half of analysts are somewhat dissatisfied, dissatisfied or very dissatisfied with the timing and amount of disclosure.

Meanwhile, 71% of analysts described state government credit quality as very strong, strong or stable. Analysts said they felt state governments were mostly prepared for the downturn.

Nearly half, 49.52%, of analysts have a very favorable or somewhat favorable opinion on how Moody’s Investors Service has covered the pandemic. That was the highest ranking among the bond rating agencies, followed closely by S&P Global Ratings’ 49.27%.

The overall opinions of S&P, Fitch Ratings and Kroll Bond Rating Agency rose compared with last year, according to Kozlik.

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Coronavirus Capital markets Hilltop Securities Tom Kozlik Public pensions Corporate governance Budgets State budgets