Markets

Tax-free money market funds reported losses for the week ending Jan. 21 after posting record assets under management for the first two weeks of 2008.

The Bond Buyer’s weekly yield indexes were mostly higher this week, as a sell-off yesterday wiped out any lingering firmness in the long end and tempered the short-end gains tax-exempts had seen in the previous two sessions after the Federal Reserve’s 75 basis point cut of the federal funds rate.

Weekly reporting municipal bond mutual funds had a net inflow of $324 million during the period ending Jan. 16, AMG Data Services reported.

Of the estimated $3.92 billion expected to be sold in the negotiated market this week, a $1.1 billion deal from the Texas Transportation Commission will arrive tomorrow in the Lone Star State, where two other sizable deals are expected to focus investor’s attention during a relatively light, holiday-abbreviated week.

Credit is once again the story when it comes to municipal bond mutual fund performance in the fourth quarter, as those that stayed away from lower-rated paper performed the best, fund managers and analysts said.

Municipal money market funds continue on a roll in 2008 reaching record assets under management with inflows of $2.468 billion for the week ending Jan 14.

As the municipal market’s sensitivity towards underlying credit grows, particularly in light of the subprime mortgage crisis and its effects on bond insurance, analysts and portfolio managers say they are sharpening their skills more than ever to guard against future unexpected risks.

As the subprime mortgage crisis unfolded in the latter part of 2007 and took its toll on the municipal market — specifically the bond insurance industry — one sector of tax-exempt mutual funds was quietly outperforming all other categories.

Chicago will lead the way in the new-issue market this week, as Lehman Brothers will price an $876 million offering that was originally slated to hit the market last year.

Weekly reporting municipal bond mutual funds had a net outflow of $183 million during the period ending Jan. 9, AMG Data Services reported.