Issuance of long-term municipal bonds will decline marginally next year from the pace set this year, when volume fell more than 40% from the record-breaking highs of 1993, the Public Securities Association said Friday in its annual forecast.
PSA said long-term volume in 1995 would total $157.5 billion, down 4.5% from this year The securities industry trade group estimated that the final total long-term municipal bond issuance for this year would fall to $165 billion, down 43.4% from 1993 when massive refinancing volume drove up total new issuance.
Total long-term and short-term volume will reach an estimated $204.8 billion this year, the association said, a drop of 39.4% from the record $337.9 billion issued in 1993.
Short-term issuance is projected to total $39.8 billion in 1994, a 14.4% decline from the $46.8 billion issued in 1993. For 1995, PSA projects that short-term issuance will decline 4.5% to $38 billion. The estimate represents "a modest falloff due to improving fiscal conditions among state and local governments," PSA said in a press release.
"The increase in interest rates throughout 1994 was the main reason behind this year's sharp decline in issuance," said Heather L. Ruth, PSA president.
"The rising interest rate environment prohibited issuers from coming to market with refunding debt, a factor which had propelled issuance to the record levels seen in 1993," Ruth said.
PSA expects bonds issued for refunding purposes this year to total only $50.2 billion, a 74.0% decline from the $192.8 billion seen last year. In 1995, PSA forecasts that refundings will decline by 4.8% from this year's projected level, to $47.8 billion.
Issuance of debt for new investment purposes staged a resurgence this year, providing one of the bright spots in this year's volume picture, PSA said. The group projects new capital issuance of $114.8 billion this year, up 16.5% from $98.5 billion in 1993.
"Many state and local governments faced increased capital investment needs this year, especially in the education sector," PSA said. Bonds issued for education purposes increased sharply this year, to a projected $20.3 billion from $14.7 billion in 1993. The association noted that local school officials are under increasing pressure to handle a rising population of children from parents of die baby boom generation.
Single-family and multifamily housing bond volume also jumped this year. PSA forecasts $7.3 billion in singlefamily housing bond issuance in 1994, more thin double the $3.4 billion of 1993. Projected multifamily bond issuance rose to $3.4 billion this year, up 44.0% from the 1993 level.
"The drop in new-issuance volume next year could lead to a uniquely favorable investment environment for munis," PSA said. The outstanding supply of munis is expected to drop in 1995 for the second straight year. According to The Bond Buyer's Muniview database, issuers are expected to redeem an estimated $191.0 billion of long-term debt this year and another $201.2 billion next year. Taking into account reduced new issuance, the outstanding supply is expected to shrink by $26.0 billion in 1994 and $43.7 billion in 1995, according to the PSA release.