Bloomberg News

Municipal-Bond Sales to Rise on Low-Rate Refinancing, RBC Says

September 11, 2011

Sept. 9 (Bloomberg) -- Low interest rates will encourage municipal borrowers to refinance debt in the last four months of 2011, said RBC Capital Markets LLC, which raised its forecast for long-term bond sales in the period to $100 billion.

As much as $275 billion of municipal bonds will be sold this year because of the increase, up from a previous estimate of $260 billion, Chris Mauro, an RBC analyst, said in a report today.

There is $166 billion of municipal debt currently eligible to be refunded, up from $140 billion in the same period last year, Mauro wrote. More issuance could mean higher yields if a weakening economy hurts the credit of borrowers and investors accelerate their exit from tax-exempt mutual funds, he wrote.

“An increase in average monthly issuance to $25 billion through year-end from $20 billion year-to-date could potentially put significant pressure on the municipal market,” he said.

The yield on top-rated 20-year tax-exempts was 3.4 percent today, the lowest since Oct. 27, according to data compiled by Bloomberg.

Low yields had prompted investors to withdraw money from municipal-bond mutual funds for six straight weeks through Aug. 30, according to Lipper US Fund Flows. Investors added about $565 million in the week through yesterday, Lipper said, the first inflow since July.

State and local governments sold about $129 billion of fixed-rated municipal debt in the fourth quarter of 2010, the most in a three-month period since at least 2003, Bloomberg data show. The flurry came as issuers took advantage of the Build America Bonds program, which provided a 35 percent federal subsidy on interest costs, before it ended Dec. 31.

If issuance reaches $275 billion this year, it would represent 83 percent of the tax-exempt debt sold for all of 2010, Mauro wrote.

--Editors: Jerry Hart, Mark Schoifet

To contact the reporter on this story: Michael McDonald in Boston at

To contact the editor responsible for this story: Mark Tannenbaum at

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