Despite expectations that municipal bond issues will dwindle on a rise in interest rates, the figures show the reverse trend. It is estimated that in the first quarter of 2005 $96 billion of bonds was sold as opposed to $87 billion sold in 2004. This is a record first quarter, and the six-largest quarterly number ever, reports Bond Buyer. The record was set in the second quarter of 2003 with $120 billion.

The Bond Buyer’s 20 General Obligation Bond Index that tracks the rate issuers have to pay for using the borrowed funds, first dropped to 4.27 percent in mid-February from 4.47 percent at the beginning of the year, and now has surged again to 4.61 percent.

``We’ve seen some refinancing canceled because of rising rates, but in general people are making capital decisions according to their needs,’’ says Dennis Farrell, head of municipal ratings at Moody’s Investors Service. ``The big driver is GDP and/or population growth.’’

``In reality, debt service payments are very low when compared to operating costs,’’ Farrell says. ``If you want to make a difference, separate your capital from your operating costs.’’
The first quarter numbers are good news for the professionals in the muni market. The figures show that the market is not heading for a quick downturn, as municipalities continue to finance infrastructure, putting in roads and sewers, improving their health care and education systems.