Major municipal bond dealers see new issue volume holding steady next year as new money borrowing stays tepid while refunding activity remains robust.
Projections range from estimates of $375 billion to $400 billion in 2013, compared to $370 billion for 2012.
With around $230 billion of debt expected to mature in 2013, net new supply will be low to negative, ranging from negative $30 billion to $14 billion.
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Citi's projection is on the high end at around $400 billion with net new supply of around $10 billion.
"I expect new money issuance to pick up next year from this year," said Vikram Rai, a fixed income strategist at Citi. "Refundings have constituted more than 50% of the overall issuance this year and I would expect that percentage to drop as new money issuance picks up."
One of the driving factors for new money issuance will be the rebuilding efforts following the Hurricane Sandy aftermath, according to Rai. "New York and California are the largest issuers in the market. If New York ramps up its issuance, that will have an impact on new money issuance," he said. "New money issuance in 2012 has been the lowest in the last 10 years. There are infrastructure and other utility projects that need to be funded that have been put off long enough."
Rai estimates new money issuance to be close to $200 billion for next year.
JPMorgan is projecting $390 billion in long-term issuance next year, with net issuance at around $13.7 billion.
The firm expects less refunding than last year, with current refundings at around $100 billion and advance refundings at around $48.7 billion. "Given the heavy refunding volume, we would expect issuance to continue to be most heavily concentrated in the [five-year to 20-year] portion of the curve, with long-end issuance below historical averages," according to analysts at JPMorgan.
"As for new money issuance, we anticipate a continued reluctance on the part of state and local officials to initiate costly projects amid the slow economic recovery," analysts said.
JPMorgan expects new money to be approximately 40% of all issuance next year.
Morgan Stanley is projecting $385 billion, with around $188 billion of new money and $200 billion of refunding.
"While low interest rates and needs to restore infrastructure support new borrowing, slow economic growth and relatively weakened credit profiles preclude new money financings from returning to long-run historical averages," according to a report written by Morgan Stanley Research's Michael Zezas, Meghan Robson, and Angela Wang.
Morgan Stanley projects more refunding activity than others are anticipating based on present value savings given low interest rates, pressure on issuers to fill budget gaps, and a desire to lock in rates before yields creep up.
"Significant refunding supply means investors can expect more bonds sold in the intermediate portion of the curve through 20 years, with less issuance on the longer end," the report said.
Net supply is estimated to be around $11.5 billion, with a bearish estimate as low as negative $10 billion, and a bullish estimate up to $28 billion. Analysts expect net supply trends to be consistent with historical, seasonal trends. For example, spring and fall are more challenging months for technicals, while summer and winter should be more supportive.
Bank of America Merrill Lynch is also expecting an increase in new money, but projects a lower gross supply for 2013 at around $375 billion.
"In 2013, we expect an increase in new money to around $200 billion as the continued recovery should give issuers more confidence in implementing capital programs," analysts wrote in a report.
Compared to an expected $229 billion of bonds maturing next year, BofA projects net supply to be around negative $30 billion.
"This should continue to be a strong technical factor for the muni market, which may lead to futher credit spread tightening and lower muni ratios to Treasurys," analysts said.
RBC Capital Markets is projecting the lowest total supply for 2013 of about $325 billion, based on a reduction in refundings coupled with a moderate uptick in new money.
The projected supply is an approximate 10% reduction in issuance from 2012's expected total.
"Despite continued fiscal austerity at the state and local levels, we anticipate that pent-up demand will push new money issuance up approximately 15% to about $185 billion in 2013 from an estimated $160 billion in 2012," RBC analysts wrote in a report.
They expect refunding to drop to roughly $140 billion from about $210 billion.
RBC analysts said that the decrease in refundings is due to the abundance of refundings in 2012, which reduced the pool of eligible refunding bonds for 2013.
For the year to date, long-term bond issuance currently totals $373.4 billion, according to Thomson Reuters data. Of that, $144.6 billion is new money, $154.8 billion is refunding, and $74 billion is combined new money and refunding.
