Bloomberg Survey Finds U.S. Credit Ratings Will Fall In 2012

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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