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(Adds refunding volume, underwriter and issuer rankings, insured and private placement totals)
Jan 3 (Reuters) - U.S. states, cities, schools and other issuers sold $423.8 billion of debt in the municipal market in 2016, a 12.2 percent increase over 2015 and the largest annual supply since 2010's record $430.4 billion, according to Thomson Reuters data on Tuesday.
Refundings of outstanding bonds, which accounted for nearly $261 billion of 2016's total, outpaced new bond sales as issuers took advantage of market rates that hit all-time lows last summer.
Bank of America Merrill Lynch was the top muni underwriter with 518 deals totaling nearly $66 billion, followed by Citigroup with 529 deals totaling $49 billion. J.P. Morgan Securities came in third with 402 deals totaling $41.5 billion. The three firms had the same rankings in 2015.
California was the biggest issuer with 13 deals totaling $8.9 billion. New York's Dormitory Authority and Metropolitan Transportation Authority rounded out the top three.
Insured bonds totaled $25.3 billion, up only 0.5 percent from 2015. The amount of privately placed muni debt fell by 15.4 percent to $21.3 billion, Thomson Reuters data showed. (Reporting by Karen Pierog; Editing by Leslie Adler and Grant McCool)