Dan Seymour

The municipal floating-rate note may have begun to take off at precisely the wrong time.

More than half of the floating-rate notes sold this year have been from state-run student loan securitization pools, nearly all with Libor as the reference rate and most underwritten by Bank of America Merrill Lynch.

Early this year, the municipal floating-rate note was fast emerging as a potent tool for local governments to maintain some variable-rate component in their debt profiles.

The municipal bond mutual fund industry shrank last week for the first time since June as investors handed over the smallest slug of new money in more than three months, with intermediate-term muni bonds absorbing the biggest hit.

Bank of America Merrill Lynch fended off a summer onslaught from Citi to hold on to the top spot among municipal bond underwriters through three quarters of the year.

The flow of new cash into municipal bond mutual funds continued to recede last week as investors began to rediscover their appetite for risk.

Municipal issuers that are more likely to have trouble renewing bank guarantees supporting floating-rate debt face greater scrutiny from Moody’s Investors ­Service, the rating agency said in a report Wednesday.

The Manhattan Institute for Policy Research Wednesday released a report arguing that higher interest rates on taxable bonds issued by Illinois and California indicate they are more likely than other states to default on their debts.

State and local government tax receipts grew modestly in the second quarter of 2010 as an acceleration in consumer spending boosted sales tax revenue.

The return of bank profitability coupled with some of the provisions of the federal stimulus coaxed banks into buying state and local government debt in the first half of the year.

The stream of cash running into municipal bond mutual funds continued to taper slightly last week.

Pacific Investment Management Co.’s newest exchange-traded fund drags the active-versus-passive management debate into the taxable municipal bond space.

The Basel III bank capital requirements proposed earlier this month threaten to eviscerate the supply of eligible investments for tax-free money market funds — an industry already struggling with a severe supply shortage.

A fund devoted to investing in Build America Bonds would have a tough time avoiding debt backed by the states of California and Illinois altogether. Eaton Vance is doing its best.

Hospitals, universities and other not-for-profit issuers are enjoying exceptionally low ­borrowing costs and rampant demand for their debt. The only problem is it is not likely to last forever.

State and local governments’ outstanding debt shrank in the second quarter of 2010 for the first time in nearly 10 years as many of the facilities established during the prerefunding craze last decade matured.

The sell-off in municipal bonds finally appeared to sap some retail demand for state and local government debt last week as muni mutual funds reported taking in the paltriest amount of new money in six weeks.

Harrisburg, Pa.’s near-miss on its general obligation debt, Warren Buffett’s gloomy foreshadowing of a “terrible problem,” and flirtations with a double-dip recession have not much changed the tenor of analysts’ expectations for the strength of municipal credit.

A component of the Basel III banking regulatory package would make it more expensive for banks to guarantee municipal debt, possibly limiting options for municipalities seeking to sell bank-supported debt.

Retail investors ignored the pullback in the state and local government debt market last week, ­committing the third-heaviest slug of new money to ­municipal bond mutual funds this year.