Municipal Bond Analyst Survey, 2019
— by Tom Kozlik
Key Survey Findings
● The Importance of Pensions is Falling as Other Issues Become More Significant to Municipal Bond Analysts
● The level of fiscal preparedness (by issuers) for the next recession (55% or 86 of 155 analysts surveyed) is the second most concerning issue according to municipal bond analysts. This is notable because this topic was not even included in our 2018 survey.
● Public pensions (85% or 132 of 155 analysts surveyed) remains the number one issue/trend facing the municipal bond market according to the 155 analysts who participated in the 2019 survey.
● The impact of U.S. demographic shifts (50%) is gaining traction with analysts. Last year only (21%) of those surveyed thought demographics moved the needle. In other words, analysts are coming around to understand what Bill Strauss and Neil Howe wrote about in their 1991 book "Generations."
● The importance of infrastructure (43%) jumped into the top five in the 2019 survey compared to the only 25% who included it last year. However, federal policy uncertainty (60%, 2018) in the wake of the Tax Cut and Job Act of 2017 likely included worry about infrastructure.
● Concern about ratings (35%) jumped up to the top five most important issues/trends facing the municipal bond market today versus only (20%) of analysts who included it last year.
● State government (17%) and local government credit quality (17%) is not as important to analysts this year as they were last year. Last year state government credit quality was in the top five most important issues when (48%) of those surveyed included it. Local government credit quality was included by (20%).
● The survey shows (53%) of analysts believe Moody's allots "just the right amount" of emphasis to pensions in their municipal bond ratings.
● The importance of climate change (19%) is growing compared to only (6%) last year, but still seems to be under-appreciated. And, only 1% of analysts believe municipal issuers are "very prepared," or "prepared" from the impact of climate change.
● Only (16%) of those surveyed included Puerto Rico versus last year when (24%) included it in their top five.
● The importance of technological change (14%) remains similar to last year (12%).
● The rise of socialism on the political left and increased skepticism about capitalism (12%) and cyber security (17%) are beginning to gain attention from analysts as topics to consider.
1.Top Five Most Important Issues/Trends Facing the Municipal Bond Market Today, 2019
2. How would your role as a municipal bond market analyst be best described?
3. What do you think total (neg and comp) primary municipal bond market issuance will be in 2019 (2018 total issuance was $340 billion)?
4. What is your opinion of how prepared state and local governments and other municipal market participants are currently for CLIMATE CHANGE?
5. What is your opinion of how prepared state and local governments and other municipal market participants are currently for CYBER ATTACKS?
6. Do you think there is a public pension funding crisis among U.S. state and local governments?
7. Do state and local governments have the fiscal tools available to them to solve the pension funding crisis?
8. What are the three most likely solutions for state and local governments experiencing budget stress from rising pension liabilities (select up to three)?
9. How strong do you feel bondholder security will be going forward (generally), keeping in mind the developing trend (recoveries were 55% in San Bernardino, CA; 50% in Stockton, CA; 60% in Vallejo, CA; 25% in Detroit, MI; and potentially less than 100% in Puerto Rico)?
10. What is your general opinion about the impact issuing pension obligation bonds has on state and local government credit quality?
11. The American Society of Civil Engineers (ASCE) gave U.S. infrastructure a "D+" in 2017. What do you think the grade will be for 2021 (grade is assigned every four years)?
12. Are deficits in infrastructure investment/spending being accurately accounted for in public finance ratings?
13. What do you think are the 5 (FIVE) most important issues/trends/factors facing the municipal bond market right now?
Introduction: Smith's Research & Gradings is proud to publish the results of the 5th Annual Municipal Bond Analyst Survey done by Tom Kozlik. He was elected to Smith's All-Star Municipal Analysts Team as the No.1 All-Star Generalist in 2018.
This year's survey was sent to more than 800 analysts, many of whom were culled from the ranks of the National Federation of Municipal Analysts, as well as portfolio managers/traders who have worked as analysts. No rating agency analysts were included in the polling. Some firms do not permit their analysts to participate in surveys.
Smith's Research & Gradings champions the role of municipal research in the investment process and lauds the independent thinking that is the hallmark of our industry.
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