Almost 50% of market participants at The Bond Buyer's 2016 National Outlook Conference expect the Federal Reserve to raise rates only twice in 2016.
Of those voting in the Live Market Survey, 45.71% said the Federal Open Market Committee will hike by 0.50% in 2016, 28.57% see an increase of 0.25%, 11.43% said the Fed wouldn't move at all, 11.43% said it would raise the target rate by 0.75% while 2.86% said the Fed would push rates 1.00% higher by the end of the year.
A panel of municipal bond market influencers at the conference in New York commented on results as the audience responses were tabulated. Led by moderator Thomas Weyl, managing director at National Public Finance Guarantee, the panel was comprised of Vikram Rai, head of Municipal Strategy at Citigroup, Reid Smith, director at Ziegler Capital Management, and Nancy Winkler, debt committee chair at the Government Finance Officers Association.
"Three to four rate hikes in 2016 are likely," Rai said. "The market has always underestimated the Fed. But the Fed has the guts to push back on the market."
Municipal bond issuance was seen moving along at a good clip for the year.
When asked where muni issuance would come in for 2016, 45.45% said $300 billion to $345 billion, 33.33% said over $350 billion, 12.12% said $250 billion to $299 billion, and 9.09% said $200 billion to $249 billion.
Rai said the though that refundings would dominate issuance this year.
Reid said the market has shifted from pre-refundings to current refundings and that he didn't expect a big spike in new money issuance.
"I don't see as much infrastructure issuance as is needed," Reid said.
Most survey respondents said they expect the percent of new volume covered by bond insurance would rise in 2016, with 51.52% saying insurance would increase, 24.24% saying it would decrease and 24.24% predicting it would stay the same.
When asked what the biggest muni news headline would be in 2016, most voters in the survey said that the continuing financial crises in Puerto Rico would continue to dominate coverage.
Puerto Rico came in at 50%, followed by pension reform at 17.65%, rising interest rates at 14.71%, Chicago/Illinois also at 14.71%, and Pennsylvania at 2.94%.
"Puerto Rico is the largest and most imminent crises," Winkler said. "There are massive structural problems in their economy and demographic problems that can not be solved on the island." She added that the situation in Congress now is not favorable to a quick solution.
She said new coverage would also start to highlight the plight and pain of many individual residents, with their stories coming to the forefront.
While Reid and Weyl said that Puerto Rico also topped their list, they both stressed that pensions would become a growing topic of interest in 2016.
"Pension obligations are a huge problem," Reid said.
Weyl added that "Puerto Rico's problem's will take a long time to solve, but pensions are becoming a growing issue."
The growing impact of heightened regulation was also a hot topic on the panel.
When asked if the rising regulatory environment will cause smaller firms to merge, cut staff or cease business, 68.97% said yes, 10.34% said no, while 20.69% said somewhat.
"Not all regulation is bad," Reid said. "Regulation is important to the market because it can foster trust, transparency and disclosure." He added that sometimes it causes a lot of pain to market participants.
Weyl said that the pressure on spreads -- along with added regulation – has been a factor in small firms merging or cutting staff.
"Risk is out there," Weyl said.
"I vehemently disagree with cutting staff," Rai said, "because the muni asset class is stable."
When asked if any U.S. state would fall below investment grade this year, 51.72% said yes, while 48.28% said no.
On the question of whether tax reform would gain momentum after the November elections, 43.75% said no, 31.25% said yes and 31.25% said partially.
"Tax reform will become more of an issue in the election," Winkler said, "and a new president will try to move that agenda forward."
Rai disagreed, saying the new president would have other pressing issues to deal with first, adding that he thought tax reform would be more of priority in 2018 or later.
"The muni tax exemption is safe for now," Reid said.
