Fixed-income issuance to fall to $3.4 trillion

The Securities Industry and Financial Markets Association today predicted that fixed income issuance would fall to $3.4 trillion this year. That’s a 15% decrease from the estimated $4.0 trillion issued last year. Sectors most affected by subprime mortgages will see significant slides in issuance, while corporate and municipal issuance will fall but remain high, according to SIFMA’s forecast. These predictions are based on a survey of member firms. Long-term municipal issuance will fall to $405 billion, a decrease of 5% from 2007, while corporate bond issuance will be $965 billion, a 14.8% fall from last year but still near historical highs. Outstanding commercial paper volume is expected to fall slightly to $1.76 trillion in 2008, from $1.86 trillion in November 2007. Issuance of asset-backed securities, the culprit behind the credit-market deterioration, will fall 36% this year, hitting $325 billion. Home equity loans, which make up the bulk of ABS, will crumble by 72%, hitting $63 billion, thanks to depressed pricing and high credit spreads. Additionally, the report predicts slow but positive growth in gross domestic product during the first half of the year, with acceleration in the latter half of 2008 as the economy overcomes the deterioration in the housing sector and credit markets. SIFMA’s report also identified the key drivers for this year as the length and severity of the soft credit and housing markets, the depth of housing and structured finance credit losses, the success of attempts to free up interbank lending and the degree to which the news has affected pricing in the financial markets.