Updated posts 2026
Bank of America Corp., a leading underwriter of state and local bonds, has released its forecast, anticipating $400 billion in municipal bond sales for the upcoming year. While this prediction shows a slight increase from this year’s numbers, it marks another year of optimism from the bank regarding annual municipal bond issuance. A year ago, their strategists were projecting record-breaking sales for 2023, but the reality has been different.
In 2023, states and cities have managed to sell approximately $273 billion in municipal debt, which represents an 8% decrease compared to the same period last year, according to data compiled by Bloomberg. These sales figures have fallen short of the expectations of many banks due to higher interest rates and robust tax revenues, which have prompted governments to postpone borrowing.
Behind the slowdown sits an unusual fiscal position for many issuers. Federal pandemic relief left states and municipalities with reserves at levels rarely seen, and strong income and sales tax collections added further cushion. A government sitting on surplus cash has little reason to borrow at elevated rates for a project it can fund directly or delay a year or two. That combination has muted issuance far more than any lack of infrastructure need.
If the current issuance pace continues, with an average of about $30 billion in long-term municipal bonds sold each month, the year-end sales estimate would reach approximately $350 billion. Such levels of sales would mark the second consecutive year of declining issuance, according to Bloomberg’s data.
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In October 2022, Bank of America initially projected municipal bond sales for this year to reach $500 billion. However, by the spring of 2023, they revised their estimate down to $400 billion. On Friday, the bank’s strategists explained that their previous forecasts had been impacted by the Federal Reserve’s unexpected decision to continue raising interest rates this year.
“The market environment and yield levels have always been crucial factors influencing our issuance forecasts,” stated the strategists in their report. “Had our predictions for municipal interest rates materialized, our issuance forecast would have been on track.”
For 2024, the strategists anticipate approximately $300 billion in bond sales for new projects, reflecting a growth rate of about 4.5%. This rate is lower compared to the years preceding 2022, and they attribute it to the high interest rates expected during the first half of 2024, as well as the projected low GDP growth for the following year.
Additionally, the strategists are forecasting $100 billion in bond sales to refund higher interest-rate debt in 2024. They note that the volume of refinancing will be influenced by the actions of the Federal Reserve, particularly when the central bank begins to reduce interest rates and the extent of those rate cuts.
“Transitioning from tightening to easing in 2024 is expected to stimulate a robust municipal bond market rally that should persist throughout the year,” they mentioned in their report. “However, the strength, magnitude, and timing of this rally will play a crucial role in the success of refunding efforts.”
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