Muni Cap May Force $150 Billion in Calls, Citigroup Says

U.S. municipal issuers may have to call as much as $150 billion of debt if President Barack Obama’s plan to limit income-tax deductions is applied to interest on the bonds, according to Citigroup Inc.

Mandatory redemption provisions of conduit and private-activity securities could be triggered by a cap that affects the deductibility of earnings for some bondholders, Citigroup muni strategists including Vikram Rai said in a Jan. 4 report. That would mean “substantial” losses for investors, or a “sharp increase in borrowing costs” for localities, according to the report.