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SAN FRANCISCO, Dec 30 (Reuters) - U.S. municipal bond and note issuance reached a six-year high in 2016, closing the year with $423.8 billion in new sales and up 12 percent from 2015, according to Thomson Reuters data.
The last time the annual issuance was larger than 2016's total was in 2010, when $430.4 billion of new bond and notes were sold on the municipal market. In 2015, issuance totaled $377.6 billion.
Sales surged this year as low interest rates kept issuers returning to the $3.7 trillion U.S. municipal bond market and yield-chasing investors gobbled up deals.
Low and negative sovereign interest rates have contributed to a scramble for relatively higher-yielding U.S. municipal debt. Foreign buyers now hold more muni bonds than ever, U.S. Federal Reserve data shows.
This year was notable for the steady grinding down of both rates and credit spreads, Janney Fixed Income Strategy reported on Friday. Rates hit a low in July with the 10-year benchmark bottoming out at 1.34 percent and the 30-year benchmark at 2.11 percent. Rates have increased since then, with the 10-year rising by 104 bps and the 30-year improving by 106 bps, especially after November's election.
"The movement of rates during 2016 has been interesting to watch," Janney reported. Year-over-year, the 10-year increased by only 32 bps from 2.06 percent in January 2016. The 30-year increased by 28 bps from 2.89 percent.
New sales of municipal bonds slumped during the month of December, totaling just $18.3 billion, the slowest month of 2016 and about half of the year's monthly average of $35.3 billion.
The first week of 2017 will start sluggish with $3.01 billion of new deals expected from state, city and other government agencies, according to preliminary Thomson Reuters data. Deals will be comprised of $2.2 billion from the negotiated calendar and $80 million from the competitive calendar.
The largest deals to start out 2017 hail from state higher education systems. Texas State University System Board of Regents plans to sell $604.6 million of revenue and refunding bonds. Another $380 million will be sold by the Board of Regents of the University of North Texas System. The University of Pittsburgh of the Commonwealth System of Higher Education plans to sell $525 million of taxable university refunding bonds. (Reporting by Robin Respaut; Editing by Dan Grebler)