By Analytical Services Division on December 15th, 2010
We are pleased to bring you the sixth annual Municipal
Volume Forecast from Loop Capital, this time for 2011. The lesson we learned from last year’s
forecast was to trust the model output.
We were concerned that our $435B forecast for 2010 would be too
high. As it turns out, it was very
close to what we expect to be the actual volume for 2010. This coming year we expect that volume
will fall based upon a variety of factors discussed in the report.
Our forecasting model is based on regression analysis...The factors that were analyzed include Treasury and municipal yield ratios, the slope of the Treasury and municipal yield curves, the level of interest rates, and state and local government revenues. Other considerations include historical volumes, nominal GDP growth, job growth, advance refunding activity and bond elections.
Special factors that will impact municipal volume in 2011 include:
About $20 billion of BABs (and other ARRA instruments) moved from 2011 to 2010
Airport volume may fall by about $12 billion due to the runoff of the favorable AMT-related treatment under ARRA
A reduction of refunding activity of about $20 billion due to continued negative arbitrage
Continued heavy issuance by the "high volume" issuing community
A shadow calendar of deals in Q1 2011 that were not completed in 2010 due to the year-end surge in interest rates that caused some postponement of tax-exempt issues
We are pleased to bring you the sixth annual Municipal Volume Forecast from Loop Capital, this time for 2011. The lesson we learned from last year’s forecast was to trust the model output. We were concerned that our $435B forecast for 2010 would be too high. As it turns out, it was very close to what we expect to be the actual volume for 2010. This coming year we expect that volume will fall based upon a variety of factors discussed in the report.
Municipal Bond Volume Forecast for 2011 (PDF) »
Special factors that will impact municipal volume in 2011 include: