Municipal issuance expected to decline next year, SIFMA survey finds

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WASHINGTON — Municipal issuance is expected to drop for a second-straight year in 2019, falling about 5.4% from this year's level, according to the 2019 SIFMA Municipal Issuance Survey.

Municipal bond and note sales are expected to slide to $353.5 billion from $373.8 billion that’s predicted this year, the survey to be released Thursday found.

The survey of securities firms found that pressures caused by unfunded pension obligations are expected to be the most influential factor affecting the muni market next year.

Survey participants expect about 30 issuers to default in 2019 for a par value of $2.75 billion, defining default as either a bankruptcy filing or a missed payment of interest or principal.

The participants in last year’s survey gave the top ranking to pending congressional tax legislation which threatened to terminate private activity bonds and advance refundings.

The final tax bill didn't terminate PABs but did phase out advance refundings on Jan. 1, which led to a 17.5% plunge in long term issuance this year through November, according to Thomson Reuters data. Unfunded pension obligations, a chronic problem, ranked second-most influential in last year’s SIFMA survey.

Participants ranked broad-based deterioration of credit as the second most important influence on the muni market in 2019.

Long-term municipal issuance is expected to fall to $317 billion in 2019 from an expected $330.7 billion this year.

Short-term issuance is expected to decline to $36.5 billion in short-term notes next year compared to $43.0 billion in 2018.

Refundings are expected to account for 27% of long-term tax-exempt issuance in 2019, up from an expected 24% this year.

Taxable issuance is projected to remain unchanged at $25 billion in 2019 while long-term tax-exempt issuance to decline to $275 billion from $287.2 billion this year.

VRDO issuance is expected to decline to $5 billion in 2019, down from an expected $7.3 billion this year.

There were six participants in the survey, which was conducted between Nov. 19 and Dec. 17, representing a mix of large and regional firms.

Two of the participants predict education will account for 40% of 2019 issuance while a third one ranked it at 20%.

Firms were divided over which sector will be the top issuer in 2019 with one firm saying general purpose bonds will be 60% and another putting general purpose and education both in the top spot at 40%.

The other four firms said the top sector for 2019 would represent 60% of market issuance. They were split over whether it would be transportation, utilities, housing or public facilities.

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Munis Tax reform Refunding bonds Private activity bonds Pension funds Higher education bonds SIFMA