Now is the time of the year when economists try to estimate, based on the (1) anticipated market conditions and (2) historical and projected statistics, the municipal market new issuance for 2025.
Like most economists (which I am not!), last year my Magic 8 Ball let me down, estimating far below the amount of new municipal issuance sold in the capital markets for 2024. So, this year I’m going to base my guess on available public information, facts, and the law of averages.
Below is a chart displaying the historical issuance of municipal bonds over the past several years:
| 2021 | $483.2 billion |
| 2022 | $391.0 billion |
| 2023 | $379.9 billion |
| 2024 | $507.6 billion |
Source: Bond Buyer Market Data1
The first step I took was to look at 2024 and see how the estimates fared versus what actually occurred.
1. Municipal interest rates stayed relatively level throughout the year, ending toward the high side.
2. The Fed Funds rate remained relatively flat until September, when the Federal Reserve began lowering it, ultimately reaching 4.25%-4.50% on December 18th.
3. Last summer, many 2024 predictions by institutions were increased due to strong issuances in the beginning months of 2024, versus the issuances in the beginning of 2023.
| Year | January through June Issuance2 | |
| 2022 | 218.4 billion | |
| 2023 | 182.6 billion | (17% drop in issuance) |
| 2024 | 238.7 billion | (30% increase in issuance) |
In conclusion, both the initial and mid-year revised estimates for 2024 revealed that the delay in new money transactions during 2023 was more than offset by the increase in new money issuances in 2024.
Also, 2024 had more refundings than initially estimated due to both the number of Build America Bonds (BABs) refundings and the increase in tender current refundings.
The second step I took was to look at what were potential economic positives and roadblocks for municipalities in 2025:
The issuance of tax-exempt bonds by municipalities will potentially be under fire by Congress to help offset the revenue shortfall produced by the Tax Cuts and Jobs Act, which is expected to be renewed in some form in 2025-2026.
With the loss of the American Rescue Plan Act (ARPA) of 2021 funds, municipalities will have to issue additional debt to finance new project needs, significantly impacting municipal balance sheets.
Over $100 billion3 in bond referendums were approved by voters in 2024. That does not mean that all $100 billion will be issued in 2025, but a portion will.
No one is sure when and/or if the Fed will lower interest rates. The current thought is two to three cuts in 2025, which is less than the markets initially expected and the Fed had projected.
Federal stimulus money is still available or has been received and not yet spent:
The Infrastructure Investment and Jobs Act (IIJA), also known as the Bi-Partisan Infrastructure Law, is a bill President Joe Biden signed into office on November 15, 2021. The IIJA provides $973 billion over the course of five years from fiscal year 2022 through fiscal year 2026.4
Will bond market participants be enticed enough by the current long-term bond yields to jump into the market? Or will they stay on the sidelines and continue to participate in the strong stock market? And if bond yield returns lessen, do current bond market participants leave?
Source: Lipper/LSEG Data & Analytics
There is minimal stability in the market. In reviewing analyses from several investment banks on their projections for municipal issuance in 2025, each had a reason supporting an increase compared to 2024, while few cited reasons for a decline. This suggests a general consensus that municipal issuance will either (1) stay at 2024 levels or (2) rise in 2025.
Using the methodology of calculating the average, based on 12 investment banks' estimates (I was unable to find several big banks' estimates this year in the public domain), below is a summary of my analysis:
| Average Estimate | $507 billion |
| Maximum Estimate | $535 billion5 |
| Minimum Estimate | $480 billion |
| Number of Estimates | 12 |
Note: There were a few that had two predictions. One claimed if tax-exempt was “put under fire” by Congress and the other stated if tax-exempt was not “put under fire” by Congress. I used the “not put under fire” estimate. The “put under fire” estimate would be considerably higher as municipalities would rush to market to finance their 2025 and some beyond projects.
As always, please feel free to connect with me on LinkedIn if you have any additional thoughts I might have left out that you feel are relevant.
1 Bond Buyer’s monthly “A Decade of Municipal Bond Finance” table
2 American Rescue Plan Act - National League of Cities (nlc.org)
3 Build America Mutual (BAM) 2024 Year in Review
4 The Structure and Funding of the IIJA (acgadvocacy.com)
5 Excludes Hilltop estimate of $745 billion as a possibility if tax-exemption is possibly eliminated and expected issuance in 2026 is pulled into 2025 to beat the date tax-exemption that goes away.
Disclaimer: DebtBook does not provide professional services or advice. DebtBook has prepared these materials for general informational and educational purposes, which means we have not tailored the information to your specific circumstances. Please consult your professional advisors before taking action based on any information in these materials. Any use of this information is solely at your own risk