U.S. Muni Sales May Total $330 Billion in 2012, Hallacy Says

U.S. state and city debt issuance may total $330 billion this year, about $60 billion higher than in 2011, said John Hallacy, head of municipal research at Bank of America Merrill Lynch.

While the lowest interest rates in a generation have spurred local governments to refinance debt, more municipalities are starting to issue bonds for new projects, Hallacy said. He spoke today at the State & Municipal Finance Conference hosted by Bloomberg Link in Chicago.

“In the last few weeks there have been more new money transactions,” Hallacy said. The share of such sales has risen to almost 40 percent of 2012 issuance, from about 35 percent earlier in the year, he said.

The increased borrowing to undertake fresh projects comes as tax collections extend a rebound from the 18-month recession that ended in 2009.

States’ tax revenue rose 4.1 percent in the first three months of 2012, compared with a pace of 3.6 percent in the previous quarter, the Nelson A. Rockefeller Institute of Government in Albany, New York, said today. It was the ninth straight quarterly gain, the preliminary data show.

“We tend to think there will be more new money transactions later in the year,” Hallacy said.

Municipalities have sold about $146 billion of long-term, fixed-rate bonds in 2012, compared with $80 billion in the same period of 2011, data compiled by Bloomberg show.

U.S. tax-exempt securities have earned about 4 percent this year, compared with 1.7 percent for Treasuries and 3.9 percent for corporate debt, Bank of America index data show.

A fixed-income rally amid Europe’s sovereign-debt crisis helped drive a Bond Buyer index of 20-year general-obligation yields down to 3.77 percent last week. It touched 3.6 percent in January, the lowest since the 1960s.

To contact the reporters on this story: William Glasgall in New York at wglasgall@bloomberg.net; Michelle Kaske in New York at mkaske@bloomberg.net

To contact the editor responsible for this story: Stephen Merelman in New York at smerelman@bloomberg.net.

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