Survey expects 2020 will bring a 5.9% increase in issuance

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Broker-dealers expect total muni issuance to increase to $479 billion to $452.3 billion in 2020, according to the Securities Industry and Financial Markets Association's latest survey of its members.

That would mean a 5.9% increase in issuance this year, according to SIFMA’s 2020 Municipal Issuance Survey released Tuesday.

“Our estimation is that interest rates are anticipated to stay low and the environment for issuing debt will continue to be favorable,” said Leslie Norwood, a managing director, associate general counsel, and head of municipals at SIFMA.


“Low interest rates makes it advantageous for issuers to borrow money,” Norwood said.

As of October 2019, the Federal Reserve lowered its target rate to 1.50%-1.75% from 1.75%-2%.

SIFMA also projects a 32.3% jump in taxable muni issuance due also to low interest rates, but also due to a lingering effect of the elimination of tax-exempt advance refunding in the 2017 Tax Cuts and Jobs Act.

Taxable issuance is expected to increase from $67.3 billion to $89 billion in 2020. There will be a slight uptick in tax- exempt municipal issuance from $317.7 billion to $320 billion in 2020, according to survey respondents.

With the inability to tap into the tax-exempt market for advance refundings, issuers and obligors want savings and will go to the taxable market in a low interest rate environment, Norwood said.

Long-term municipal issuance will reach $434 billion in 2020 from $406.6 billion issued in 2019, SIFMA projected. Short-term issuance is expected to decline slightly to $45 billion in 2020 from $45.7 billion issued in 2019.

Variable-rate debt obligation, or VRDO, issuance is expected to increase by 163.2% from $8 billion to $21 billion, according to SIFMA.

“Our guess is that variable-rate demand obligations will be anticipated to increase based off of the interest rate environment,” Norwood said. “When you anticipate that interest rates will continue to be low, that makes floating rate and variable rate products very attractive to issuers.”

Survey respondents expect about 10 issuers to default in 2020 for a par value of $1 billion.

Respondents also said general economic weakness, slow growth and fiscal pressures associated with underfunded pension programs would have the greatest effect on the municipal market in 2020, followed by regulatory and compliance burdens.

The survey respondents were generally unanimous that general purpose and education would be the two largest sectors for 2020, followed by utilities and public facilities, according to SIFMA.

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