The Securities Industry and Financial Markets Association (SIFMA) is projecting a 15% decline in fixed income issuance this year to $3.4 trillion, down from the estimated $4.0 trillion issued in 2007.

Issuance is expected to decline significantly in the sectors most affected by the subprime mortgage deterioration, it said, whereas both corporate and municipal issuance are projected to remain high relative to historic levels. The forecast, which is based on a survey of SIFMA member firms, also calls for slower GDP growth in the first half of the year and a pick up in the second half of 2008 as the economy works through the housing sector contraction and credit market turbulence.

“Following strong issuance levels in 2007, when volume records were set in both the municipal and the corporate sectors, the consensus for 2008 reflects a slowing economic pace and continued concerns about the housing market,” said Michael Decker, senior managing director of research at SIFMA. “While risks will remain, we forecast improvement beginning in mid-2008 as the operating environment improves and the current negative conditions have been fully factored into the markets.”

It suggests that key drivers for 2008 will be the length and severity of the mortgage market and housing weakness; the magnitude of additional housing and structured finance credit losses and capacity for capital replenishment; success of initiatives to free up interbank lending and credit markets; and the degree to which bad news has already been reflected in financial market pricing.

SIFMA’s survey projects corporate bond issuance will be $965 billion, a 14.8% decline from 2007 issuance levels. High-yield and investment-grade issuance are also both expected to fall around 15% in 2008, to $115 billion and $850 billion, respectively.

The outstanding commercial paper volume is forecast to decline slightly, from $1.86 trillion in 2007 to $1.76 trillion in 2008.

Asset-backed securities issuance is projected to decline 36% in 2008 to $325 billion from $507 billion in 2007. Home equity loans, previously the largest component in the ABS sector, are projected to experience a 72% decline, from $222 billion to $63 billion. Credit card receivables are projected to replace home equity loans as the largest ABS sector at $90 billion in 2008.

Total mortgage-related securities issuance is expected to decline close to 13% in 2008, to $1.7 trillion.

Additionally, long-term municipal issuance is projected to fall close to 5% from 2007 levels, to $405 billion.

The survey also projects the S&P 500 equity index to rise to 1,600 by the end of 2008. The principle driver propelling equity prices is expected to be historically low interest rates, SIFMA said. The equity market outlook, however, is constrained by credit market liquidity conditions and pressure on corporate profits.