Janney Says Muni Sales Will Drop Every Year Through 2017

U.S. municipal-bond issuance will decrease every year to as low as $175 billion in 2017 as rising interest rates and austerity measures curb borrowing, according to Janney Montgomery Scott LLC.

States and localities will borrow $250 billion to $275 billion in 2014, the second consecutive year of declines, Tom Kozlik, director of municipal credit analysis at Philadelphia-based Janney, said today in a report.

The years of $300 billion or more of total issuance “are likely in the past,” Kozlik said. “A higher interest rate environment and our other qualitative factors will help keep new money issuance closer to pre-2000 levels.”

Yields on 10-year Treasuries, a benchmark for borrowing rates, will climb by 0.97 percentage point to 3.52 percent a year from now, according to the median forecast of 64 analysts in a Bloomberg survey.

Janney estimates sales will drop to as low as $225 billion in 2015, $200 billion in 2016 and $175 billion in 2017.

States and localities have sold $95.2 billion of long-term, fixed-rate debt this year through May 16, or about 28 percent less than the $131.7 billion issued during the same period in 2013, according to data compiled by Bloomberg.

An annual report on state debt released today by Moody’s Investors Service shows that trend may continue.

“Despite the need for large investments after years of low capital spending, sentiment about debt remains conservative,” wrote Kimberly Lyons, a Moody’s analyst.

Net tax-supported state debt increased by 0.4 percent in 2013, the slowest growth in 20 years, Lyons wrote. That compares with a 1.3 percent increase in 2012 and a 6.5 percent 10-year average annual growth rate, Lyons wrote.

About half of all U.S. states decreased their net tax-supported debt in 2013, according to the report.

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