U.S. states, cities, school districts and other borrowers in the $3.8 trillion municipal bond market are selling less debt this year, with issuance dropping 13.1 percent to $210.7 billion through July 31 versus the same period last year.
The drop has been driven by plummeting refunding volumes, which dominated the issuance calendar last year. Refinancings are down 25 percent by par amount, while new money issuance is up by 7.3 percent, Thomson Reuters data show.
Issuers were "put off by the overall rise in rates" after November's U.S. presidential election, Cumberland Advisors' fixed-income director John Mousseau wrote on July 31.
Supply could pick up through the rest of the year, however, because of a drop in yields that led to a wave of refinancings that could continue through the summer, Mousseau said.
Barclays also said it expects refundings to comprise a larger portion of overall issuance in the next six months.
Last month Barclays raised its total supply forecast to $380 billion to $400 billion for 2017 from a previous estimate of $360 billion to $380 billion.
Analysts are pointing to a long-term downward trend, despite the expectation of a short-term increase.
The market anticipates an average annual primary issuance decline of $50 billion to $100 billion over the next five to seven years because of fewer refundings, Municipal Market Analytics (MMA) wrote on July 24.
When the lower supply is coupled with "increasingly challenged state budgets likely to discourage expansion of traditional infrastructure programs, the tax-exempt and AMT (alternative minimum tax) sub-markets are headed for worsening scarcity issues," MMA wrote.
This article was provided by Reuters.