A majority of municipal bond market participants voting in Tuesday's Market Survey at The Bond Buyer's National Outlook Conference saw muni issuance at between $350 billion and $399 billion this year.
When asked to estimate total issuance of municipals in 2017, the top responses were even split – with 27% seeing between $350 billion and $374 billion and 27% forecasting between $375 billion and $399 billion.
"I don't believe that yields are going to be rising all that much,'' said Municipal Market Analytics Partner Matt Fabian, a panel participant at The Bond Buyer's National Outlook Conference in Manhattan. "Depending on the trajectory of events, both political and political, we could wind up in a fairly negative economic environment by year end, meaning [it could be] inducing more refundings."
Vikram Rai, Citigroup's head of municipal strategy, said he expects refunding to be down this year. Citi sees volume for 2017 at about $374 billion.
"Refundings will be down not because of interest rates," Rai said. "Refundings will be down because the universe of eligible bonds that can be called this year has shrunk this year compared to last year."
The survey, sponsored by National Public Finance Guarantee, also touched upon the topic of Puerto Rico. Market participants were almost evenly divided upon the subject of restructuring in 2017.
When asked if there would be any restructuring transactions for Puerto Rico debt in 2017, 40% said yes, 46% said no and 14% said they didn't know.
"The uncertainty in Puerto Rico is so immense, the challenges are so immense to work through the issues of politics – the standard that was laid out by the PROMESA board is incredibly aggressive for what needs to be done " Fabian said, referring to the Puerto Rico Oversight, Management and Economic Stability Act. "And what they said was not necessarily unreasonable in a sort of a hypothetical academic perspective. But to bring that into the context of real live government – there's a lot of wood to chop there. So I think that there's a strong incentive under PROMESA – and frankly among the creditors in Puerto Rico – to achieve something soon. So I think that it is likely that there is something that gets done."
Separately, a large majority of voters said they expect municipal bond insurance penetration to increase this year, with 60% saying forecasting an increase in insurance use, 27% seeing a decrease, and 23% believing it will remain the same.
Fabian said this should not be surprising, given market volatility, an expected shift from refundings to new money issuance, and weaker issuer credits, coupled with the declining number of insured bonds as they come due.
