Total 2022 municipal bond sale volume plunged 19.5% from 2021, as issuers were flush with cash and rising interest rates stymied refundings and taxable issuances.

Continued market volatility, inflation hitting four-decade highs, and uncertainty over the Federal Reserve’s interest rate policy decisions kept issuers on the sidelines.

Total volume in 2022 was $389.094 billion in 9,123 deals, down from $483.358 billion in 13,130 deals in 2021, according to Refinitiv data.

“It was really surprising,” said Tom Kozlik, head of municipal research and analytics at HilltopSecurities Inc.

Most firms at the end of 2021 estimated total issuance for 2022 would fall between $390 billion and $550 billion, basing their forecasts on factors like the new infrastructure law, interest rate expectations and monetary policy, global economic recovery and future tax policy.

But Russia’s invasion of Ukraine added a major macroeconomic concern to the mix, which, aside from humanitarian costs, amplified supply-chain problems and drove up fossil fuel costs and inflation around the globe.

Because of the confluence of these factors, during the summer, market watchers lowered their municipal volume projections. However, the revised forecasts — which were between $400 billion and $500 billion — still proved to be too high.

Tax-exempt issuance fell 9.9% to $313.411 billion from $347.703 billion in 2021. Taxable issuance dropped 55.4% in 2022 to $53.884 billion from $130.835 billion in 2021, per Refinitiv data.

New-money issuance decreased 3.8% to $309.431 billion from $321.541 billion in 2021. Refundings were down 56.6% to $48.499 billion from $111.797 billion in 2021, according to Refinitiv data.

The first quarter saw $103.404 billion of issuance and the second quarter hit $114.224 billion. The third quarter had $97.199 billion sold, followed by a drop to $74.267 billion in the fourth quarter.

Eleven months — all but December — had greater than $20 billion of issuance. Only six months surpassed $30 billion, and just three of those topped $40 billion, according to Refinitiv data.

Bond insurance volume fell 23.0% in 2022 to $28.884 billion in 1,425 issues from $37.524 billion in 2,198 deals in 2021, per Refinitiv data.

Revenue bonds accounted for $243.710 billion in 3,760 issues, a 19.4% decrease from 2021, and general obligation bonds dropped to $145.385 billion in 5,363 issues, a 19.6% decrease from 2021, according to Refinitiv data.

2022’s disappointing issuance stemmed from interest rates rising “so high and so sharply,” which, in turn, took refundings off the map, Kozlik said.

In the first half of the year, he said, many market participants were shocked to see interest rates rising so quickly and didn’t think rates would stay as high or even rise as far as they did.

“They were waiting for rates to come back down,” he said. This led to issuers sitting on the sidelines for most of the year.

“Many people were prepared to take advantage of that interest rate environment that we saw at the end of 2021, but rates only got higher and higher and higher,” he said.

The Federal Reserve raised rates seven times throughout the year, by a total of 375 basis points, bringing the Fed funds rate to 4.25%-4.50%, with one hike already in 2023 and more expected, in an attempt to bring inflation under control.

Municipalities, particularly local governments, had a lot of more financial strength in 2022 because of the federal pandemic relief money they’re still trying to spend, said Alice Cheng, a municipal credit analyst at Janney Montgomery Scott.

Aiding their financials were higher revenue collections over the last two years from property, sales and income taxes, she said.

“Healthier balance sheets have supported them to have more financial flexibility for the projects, have better cash positions, and some of them may be able to prioritize their capital projects, or delay borrowing,” she said.

“That’s one of the biggest reasons for the lower issuance: issuers are not seeing a rush to go into the market,” she said.

Taxable issuance in 2020 and 2021 was heavy, tied to advance refunding of outstanding tax-exempt debt after 2017’s Tax Cut and Jobs Act eliminated the ability to issue tax-exempt advanced refunding bonds. Low overall interest rates meant taxable refundings of tax-exempt debt still penciled out.

Moreover, new money and refunding issuance have been constrained by rising interest rates. Uncertain monetary policy and uncomfortable macro and geopolitical trends contributed to market volatility. Together these factors kept many issuers on the sidelines.

New York was the biggest source of municipal bonds in 2022, per Refinitiv data.

All issuers in the Empire State accounted for $49.618 billion. Texas was second with $47.995 billion, California was third with $46.981 billion, Florida followed in fourth with $15.983 billion and Colorado rounded out the top five with $13.234 billion.

The rest of the top 10 were: Illinois with $13.791 billion, Massachusetts with $12.611 billion, Pennsylvania at $12.049 billion, Georgia with $9.920 billion and Washington with $9.138 billion.