New York — Municipal bond managers and investors say they
expect credit ratings of U.S. states to fall in the next year
and that President Obama and Congress will take no action on
changing municipal bond tax status during the next 12 months,
according to a snap survey sponsored by Bloomberg Government,
taken at the Bloomberg State & Municipal Finance Conference.
More than 100 municipal bond industry players attended the
conference to gain insight on what the current financial
environment of cities and states means for investors.

Participants were asked several questions on key topics
affecting state and municipalities, as they enter budget season.
Results found:

-Credit Ratings: 48 percent said that on average, they expect
credit ratings of U.S. states to fall in the next year; 38
percent believe ratings will remain the same, and only 14
percent said they will rise;

-Municipal Bond Status: 71 percent of respondents predicted that
President Barack Obama and Congress will take no action with
regard to municipal bonds’ tax status in the next 12 months; 27
percent believe they will limit the tax exemption for municipal
bonds, with only 2 percent expecting to see the end of tax
exemption for municipal bonds;

-Defaults: With municipal bond defaults at about $1 billion so
far this year, 75 percent believe the end of year total will be
lower than in 2010; 17 percent believe the total will be about
the same as last year, while just 8 percent expect total muni-
defaults to be higher than in 2010;

-U.S. Treasury Yield: 57 percent said they expect the yield on
10-year U.S. Treasury notes to be between 2.01 and 2.5 percent
on December 31, 2011; 32 percent believe it will fall between
1.5 and 2 percent; 10 percent predict this yield will be between
2.51 and 3 percent, with only 2 percent responding that it will
be more that 3.01 percent; and

-AAA Municipal Securities: 35 percent said the yield on 10-year
AAA municipal securities will be 105-109.9 percent of 10-year
U.S. Treasury notes at the end of 2011; 33 percent believe it
will fall somewhere between 110 and 114.9 percent; with only 6
percent predicting the yield will be 115 percent or more.

Key speakers at the conference included:

-Janet Cowell, Treasurer, State of North Carolina

-Andy Dillon, Treasurer, State of Michigan

-Chipman Flowers, Jr., Treasurer, State of Delaware

-Ronald C. Green, Controller, City of Houston, Texas

-Peter J. Hayes, Managing Director and Head of Municipal Bonds
Group, BlackRock Inc.

-Lynnette Kelly Hotchkiss, Executive Director, Municipal
Securities Rulemaking Board (MSRB)

-Kent Morris, Chief Investment Officer, Office of the City
Treasurer, City of San Diego, California

-Andrew P. Sidamon-Eristoff, Treasurer, State of New Jersey

Among other topics, the speakers debated the outlook for the
municipal bond market and pension reform, addressed President
Barack Obama’s proposed limits on tax breaks for muni bond
investors, and how public-private partnerships can create new
revenue for cities.

For more information on the program and speakers, please visit:
http://www.bloomberglink.com/munis.

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