Happy 2023 to everyone in #muniland!

 

As the calendar flips over, just about everyone takes some time to reflect on the past year to assess what was and to envision the year ahead. We’ll be doing that over the next few blogs.

Before we pull out silver linings from a 2022 market that was brutal to most bond investors and issuers, let’s look at some forecasts of what may be to come. 

Bloomberg has a very comprehensive survey of all major banks and asset managers for different facets of the capital markets, from forecasts of growth and inflation to expected monetary policies. 

Most forecasts seem to see 2023 as a tale of two halves. Markets are likely to first focus on higher rates until the Fed pauses its rate hikes in March at either 5% or 5.25%. Because inflation is expected to persist, forecasts are not factoring in rate reductions even when economies start to experience negative growth. Here is the survey.

Closer to “home”, Bloomberg’s Eric Kazatsky hosted an excellent podcast last month with three of the top strategists in the muni bond market: Peter Degroot, Head of Municipal Research and Strategy at JP Morgan; Vikram Rai Head of Municipal Strategy at Citi; and Mikhail Foux Head of Municipal Research at Barclays. 

To sum, these strategists are expecting muni bond supply of $375 billion (JP Morgan) on the low end to $450 billion (Citi) on the high end. Total supply is held back by the lack of refunding opportunities, especially the lack of taxable refundings to take out tax-exempt bonds. I encourage all to listen to the December edition of “Masters of the Muniverse” on Apple Podcasts.