Buy side

The municipal bond market can expect issuance to come in on par with what the market has seen in recent weeks and market participants expect demand to continue to outweigh supply.

The New York Superintendent of Financial Services has filed a rehabilitation plan for bond insurer Financial Guaranty Insurance Company that will initially pay 15% on policy claims.

Investors' attitudes towards premium bonds have changed. They realize that they are at the bottom of the interest-rate cycle and facing a potentially volatile period in the markets. So they are adopting a defensive stance with the muni bonds they are buying.

Tax-exempt money market funds generated new cash as $1.50 billion of inflows boosted total net assets to $269.91 billion in the week ended Oct. 8, according to The Money Fund Report, a service of iMoneyNet.com.

Standard & Poor's expects slightly negative economic conditions for state and local governments in 2013.

Estimates for municipal bond volume are expected to ratchet up this week. An anticipated $8.26 billion in long-term bonds should reach the market, versus a revised $7.54 billion last week.

Moody's Investors Service is retaining its negative credit outlook on local governments.

Recent declines in graduate school enrollment numbers are a credit negative for the higher education sector, Moody's Investors Service said in a recent report.

Despite speculation over what may befall the municipal market in the fourth quarter, portfolio managers and strategists are not letting concerns over the upcoming presidential election, potential tax reform, or an expected seasonal supply surge derail their plans for year-end investment strategies

Municipal bond mutual funds saw inflows for a 25th straight week. Funds that report their flows weekly recorded inflows of $553 million for the week ended Oct. 3, Lipper FMI numbers show.

Strong reception to new issues fueled the municipal market early in the week, while solid activity in the secondary market pressured yields midweek. Muni bond indexes covering all but the short end fell on the week, reflecting the fall in intermediate and long-term rates.

Modest inflows made their way into tax-exempt money market funds this week for the first time in nearly a month as $99.2 million crept into the market and total net assets settled at $268.41 billion in the week ended Oct. 1, according to the Money Fund Report, a service of iMoneyNet.com.

Fitch Ratings increased the rate of public finance downgrades in the second quarter of this year compared to the first quarter.

Moody's says a new form of commercial paper could provide a liquidity solution for variable-rate municipal issuers facing impending Basel III problems.

Ron Schwartz is director of the tax-exempt portfolio management at StableRiver Capital Management. He has managed the firm's High-Grade Municipal Bond and the Investment Grade Tax-Exempt Bond funds both since inception.

Anticipated municipal market issuance has leveled off for a third consecutive week. Potential volume for the week is expected to total $7.45 billion, down a couple of ticks from sales of $7.47 billion last week.

Municipalities eased off the throttle last month, marking the first break this year for increases in new issuance. Long-term muni bond volume for September fell 9% from the same period in 2011.

Pennsylvania, the latest state to issue unemployment compensation revenue bonds, plans to go to market Monday and Tuesday with $2.6 billion.

Continuing last week's outflow pattern, tax-exempt money market funds lost $1.49 billion as total net assets declined to $268.31 billion in the week ended Sept. 24, according to The Money Fund Report, a service of iMoneyNet.com.

Municipal bond investors can expect another week of relatively solid issuance. Potential volume is expected to total $7.70 billion, up from sales of $7.36 billion last week.