U.S. Municipal Bond Sales May Fall Next Year, JPMorgan Says

Nov. 24 (Bloomberg) -- U.S. municipal bond sales may fall next year as Republicans gain greater control over states and Congress alters the Build America Bonds program, JPMorgan Chase & Co. analysts wrote.

State and local-government bond sales may drop to $395 billion in 2011 from about $415 billion this year, Alex Roever, Chris Holmes and Josh Rudolph wrote in a report to clients today. Sales may fall by another $50 billion if the Build America Bonds program isn’t extended beyond its scheduled expiration at the end of the year, they wrote.

The volume of new bonds may decline as the subsidy paid by the federal government on Build America Bonds interest is cut to 32 percent from 35 percent, as proposed in a bill pending in the Senate, the New York-based analysts said.

A backlash against government borrowing may also lower bond issuance, the report said. Republicans advocating spending restraint won control of a majority of U.S. governorships and full power over 25 legislatures in the Nov. 2 election.

“Intensifying scrutiny of the wide deficits and ominous debt loads of sovereign governments has made excess borrowing taboo,” the analysts wrote. “After gaining substantial standing in state Congresses, the Republican influence is widely expected to dampen the marginal propensity to borrow.”

To contact the reporters on this story: William Selway in Washington at wselway@bloomberg.net

To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net