State and local budget challenges will put pressure on municipal credits and will drag overall economic growth next year, according to the Securities Industry and Financial Markets Association’s semiannual economic projections released Monday.

The 10-year Treasury note yield will be 2.8% by mid 2011 and 3.3% by the end of the year, according to the median estimate of 22 broker-dealer firms that responded to a survey conducted between Nov. 17 and Dec. 1.

Real state and local government spending is expected to contract by 0.1% in 2011, according to the survey. This contraction diverges from an overall growth forecast for next year. Respondents projected real gross domestic product would expand 2.6% during the year.

“State and local government spending is going to be a drag on the overall economy for the next year,” said John Silvia, chief economist at Wells Fargo Securities LLC and chair of SIFMA’s economic advisory roundtable. State pension plan and Medicaid liabilities “are truly overwhelming many state budgets,” he said.

The expected expiration of the Build America Bonds program will have a “negative economic impact” on issuers, Silvia said. The BAB program widened the potential pool of state and local debt buyers, easing supply pressures on governments, he said. Tax compromise legislation currently under consideration in Congress would not extend the BAB program. Republican lawmakers have criticized BABs as a spending program that encourages some lower-rated borrowers to take on more debt.

Respondents to the SIFMA survey said the national economy will add 2.1 million jobs in 2011, compared to 1.1 million expected for all of 2010. The unemployment rate next year is likely to drop to 9.2%, they said.

That unemployment estimate is slightly more pessimistic than the projection made last month by the Federal Reserve. The Fed estimated the unemployment rate would be between 8.9% and 9.1% next year. It projected GDP growth between 3.0% and 3.6%.

A weaker U.S. dollar, brought down by the Fed’s Treasury purchases, could be the number one challenge to fixed-income investors in the new year, Silvia said. A weaker dollar “creates exchange-rate risk for foreign investors” holding Treasury securities, he said.

Still, Treasury investors can take ­comfort in the troubles in Europe. ­Investors are hesitant to take risks on Europe’s debt — making Treasuries an attractive alternative for now, Silvia said. Yet “contagion” from the European sovereign debt crisis was one of the downside risks to U.S. growth cited by survey respondents.

The Fed is expected to keep its benchmark interest rate at a range between zero and 0.25% through the first quarter of 2012, the survey found. Three-fourths of respondents said the Fed’s second round of quantitative easing will have no impact on the unemployment rate, and none said the Fed’s Treasury purchases would impact inflation.

Survey respondents said the core consumer price index will increase 1.0% for the year and core personal consumption expenditures will increase 1.1%.

Inflation “doesn’t seem to be an issue,” Silvia said. Respondents said they are “unconcerned” about the Fed’s “easy” monetary policy on inflation. Rather, the Fed’s quantitative easing is “buying insurance against deflation,” Silvia said.

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