Buy side

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.

In what was the first sizable inflow activity in nearly a month, tax-exempt money market funds increased by $1.94 billion as total net assets grew to $270.25 billion for the week ended Sept. 10, according to The Money Fund Report, a service of iMoneyNet.com.

Municipal bond mutual funds saw $820 million in inflows into funds that report their flows weekly for the week ended Sept. 12.

Light supply and a perceived hesitation on investors' parts conspired to hold the municipal market to only modest outperformance against Treasuries this week.

MBIA Inc. is fielding a new law suit and Assured Guaranty is seeking an additional credit rating.

Moody's Investors Service Tuesday repeated a threat to downgrade the United States sovereign debt rating.

The recent Berkshire Hathaway trade, sound technicals and a recent industry move to standardize contracts might increase interest in muni credit default swaps, which has suffered from apathy on the part of investors and a lack of price volatility to attract traders.

After plunging during the financial crisis, the issuance of municipal bonds subject to the alternative minimum tax is slowly rebounding, with airports leading the way.

The municipal market outperformed the Treasury market on this sluggish holiday week by largely recording less significant backups in yields. Muni bond indexes were mixed, though mostly higher.

Flows into municipal bond mutual funds remained positive. Barely. Those funds that report their flows weekly saw $260 million of inflows for the week ended Sept. 5.

Tax-exempt money market funds lost $1.70 billion and total net assets declined to $268.31 billion in the week ended Sept. 3 -- the second consecutive week of significant losses, according to The Money Fund Report, a service of iMoneyNet.com.