Buy side

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.

Strong demand for municipal bonds buoyed prices throughout the week. Muni Bond Buyer indexes fell noticeably, reflecting the lower rates.

Investor demand outlasted the end-of-summer doldrums with robust inflows to municipal bond mutual funds. But the past week saw those flows to weekly reporting funds fall to more modest levels, $256 million in inflows for the week ended Sept. 19.

Fitch Ratings is negative on localities and expects an increase in their defaults and bankruptcies.

After garnering over $1 billion that ended a nearly month-long, outflow pattern last week, tax-exempt money market funds were back in negative territory this week as they lost $449.9 million and total net assets settled at $269.80 billion for the week ended Sept. 17, according to The Money Fund Report, a service of iMoneyNet.com.

Moody's Investors Service is maintaining its negative outlook on U.S. states' credit.

Fitch Ratings placed all charter school bonds it rates on Rating Watch Negative after adopting changes to how it evaluates such credits.

Moody's Investors Service has downgraded 11 issuers of special tax supported bonds and upgraded three of these issuers.

Underwriters may soon have to adapt to changes in the way they market, conduct, and report the results of retail order periods if the Municipal Securities Rulemaking Board gets its way under a new proposal. The securities regulatory agency is seeking to improve and make retail order periods even safer for issuers and investors.

Retail order periods were first designed to give individual mom and pop investors some muscle in the battle for bond allocations by giving their orders for new issues priority consideration a day or two before the official pricing. Some 15 years later, retail order periods have enjoyed a long track record, growing in popularity and continuing to be an important component of the new-issue pricing process for issuers and investors, municipal experts and underwriters said.

Primary market volume should increase substantially this week. Potential issuance is expected to total $8.64 billion, up from total sales of $4.04 billion last week.