Markets reporter Aaron Weitzman talks with Tom Kozlik, managing director and municipal strategist at PNC Capital Markets about the trends he saw in the municipal market during the first half of the year and how he thinks the rest of the year will pan out. Will refunding volume start to drop? And if so, will new-money pick up the slack?

WEITZMAN: Let's start off with the re-fundings. Can you talk a little bit how that has impacted overall issuance so far this year?

KOZLIK: Yes, re-fundings have been one of the real big stories for the first half of 2015. It is really driven overall volume levels, not unexpectedly really. We thought that interest rates were going to stay around the levels that they've been at and we really expected refunding levels to be coming in as strong as they have been.

WEITZMAN: You see refunding is kind of drying up as we push on through towards the end of the year. I know that everyone is expecting the rates to rise. Can you speak a little bit about that?

KOZLIK: Yes, the PNC Chief Economist Stu Hoffmann still thinks that there's a rate hike that's going to happen at the end of this month. The second hike was expecting to happen in December of this year. It's pushing that back a little bit to the first quarter of 2016, but our chief economist is still expecting that the rates are going to-- There was going to be a rate hike. That doesn't necessarily mean that re-fundings are going to dry up though. That's one of things to keep in mind, especially if the short-term rates rise and a yield curve flattens. In a situation like that, we could still see a good amount of re-fundings.

WEITZMAN: New money has been down for most of the year, but the past couple of weeks, a month or two, ticked up a little bit. What can you attribute to the lack of new money so far this year and how do you see new money playing out for the rest of the year?

KOZLIK: New money is an interesting story. I thought that for the past year or two, that new money was going to not be anywhere near what we saw in previous years, and the reason for that is because credit conditions aren't great. A lot of issuers are sitting back, they're looking at their balance sheets, they don't want to add more fixed costs. One of the things that they're doing is they're thinking once, twice, three times about adding more fixed costs and one of the things that they can do in order to keep those to a minimum is to not sell out in more debt.

WEITZMAN: Okay. Now, something that we haven't talked about yet so far, kind of looking to your crystal ball if you will, going head for the rest of the year, what are you going to be keeping your eye on? Are you going to see any trends that people haven't talked about a lot, or kind of, what do you forecast I guess for the year, for the rest of the year?

KOZLIK: The big thing that I'm watching for, especially credit-wise, is while revenues have ticked up a little bit, there's still nowhere near the pace that we saw pre-2008, pre-2009, or before the recession. On top of that, there are a lot of issuers who still kind of don't realize that there's a new fiscal reality, that they've got a budget too and that they've got of react to. Quarter after quarter and year after year for that matter, there's been a good amount of credit deterioration. We're going to watch, first of all, to see if there's credit deterioration that continues, and second of all, at some point, we need to see if issuers are preparing for the next recession because at some point, there's going to be a next recession. We are near or at the top of the business cycle here and, from my perspective, credit conditions for state local governments and other municipal issuers really aren't all that prepared for that next downturn.