According to Securities Industry and Financial Markets Association securities issuance totaled $6.44 trillion in 2007, virtually unchanged from the $6.47 trillion in securities issued in 2006.

On the strength of a strong first half of the year, 2007 corporate and municipal bond issuance set records, SIFMA noted. In the second half, the weaker housing market, risk repricing and diminished credit market liquidity contributed to a much more volatile U.S. capital market environment, it noted. As a result, second half issuance slowed to $2.70 trillion compared to $3.74 trillion in the first half, and the fourth quarter volume was $1.36 trillion compared to $1.72 trillion in the fourth quarter of 2006.

“The capital markets started out strong last year, but the subprime downturn, credit market correction and loss of liquidity severely dampened activity in several key sectors in the second half,” said Michael Decker, senior managing director and head of research and public policy at SIFMA. “The outlook for 2008 rests on how quickly the economy recovers from the hits it took last year,” according to Decker.

Corporate bond issuance reached a record volume in 2007, totaling $1.11 trillion, a 4.5% increase over 2006. Issuance of municipal short and long-term securities also set a record at $486.6 billion, 13.1% higher than the $430.5 billion issued in 2006.

Mortgage-related securities issuance also grew year over year, although it dropped sharply in the fourth quarter to $384.7 billion from the $483.4 billion issued in the third quarter due to the combination of housing market deterioration and credit market turmoil. For the full year, MBS issuance totaled $2.04 trillion, higher than the $1.99 trillion issued in 2006.

The global collateralized debt obligation environment also changed dramatically in 2007 due to the credit market volatility, deterioration in subprime mortgage credit quality, valuation uncertainty and a deleveraging trend. Global CDO volume fell by 62.0% in the second half of 2007 compared to the first half. Full-year issuance decreased to $485.7 billion, a 12% decline from 2006 volume.

Treasury issuance also declined in 2007, as a result of a lower federal budget deficit in fiscal year 2007.

SIFMA expects that the ongoing tight financing conditions that lowered new issuance in the second half will continue to drive the market outlook in 2008. The length and severity of the mortgage market and the housing market downturns remain critical variables in the market outlook, it noted.