Buy side

It's been another strong week for municipal bonds as yields fell and investors gobbled up new issuance. Demand in the primary propelled the market as major deals saw yields lowered around five basis points, on average. In some cases, issues were accelerated to market or upsized.

In the first quarter of 2012, Moody's Investors Service downgraded the second highest quarterly total of municipal debt in the last 10 years.

While individual investors — the primary owners of municipal debt — have generally increased their holdings in the last 10 years, some institutional investors have trimmed their holdings and others have been aggressive buyers.

Municipal bond volume should hold steady this week, buttressed by a $1.8 billion Illinois deal that has the industry's attention.

Investors piled into muni bond mutual funds this past week.

It was a quiet week for an otherwise indecisive municipal market.

Hefty outflows from tax-exempt money market funds continued for the second week, as $3.77 billion bled out and total net assets sank to $276.92 billion in the week ended April 23, according to the Money Fund Report, a service of iMoneyNet.com.

After two quarters of decline, public finance credit stabilized in the first quarter of 2012, Standard & Poor's reported.

Rumblings heard from Washington recently regarding a threat to the tax-exempt status of municipal bonds don't seem to trouble retail investors, who have increased their purchases of munis this year, mostly through mutual funds.

What kinds of funds are retail investors interested in and what does it mean for the market?

Municipal portfolio managers say retail investors are turning to tax-exempt bond funds because they see them as a relatively safe harbor in stormy seas.

Investors are flush with cash, but they will have less to choose from in the municipal bond market this week.

Over the last four years there has been an "embryonic trend" of municipal bankruptcies, in the words of Arent Fox partner David Dubrow. These include Vallejo, Calif., Central Falls, R.I., Harrisburg, Pa., and Jefferson County, Ala.

WASHINGTON — A majority of governments, nonprofits, corporations and institutional investors surveyed would either reduce or discontinue their use of money market funds if the Securities and Exchange Commission adopted certain reforms, such as switching to a floating net-asset value, according to a study done for the Investment Company Institute.

Municipal bond yields fell this week amid relatively heavy issuance and dithering Treasuries.

The municipal market can anticipate a slight uptick in volume this week before smaller calendars are expected to close out the month.

After 18 consecutive weeks of inflows in the market, and 29 weeks in positive territory out of the past 31, municipal bond mutual funds finally had a week of slight outflows.

The week started out solidly for the municipal market, marked by robust demand, rallying yields and accelerated primary deals. But as Treasury yields reversed course midweek, the muni market ground to a halt and even began to pull back from its gains.

Aurelius Capital Master Ltd. and UBS have withdrawn from suits against bond-insurer MBIA Inc.

Tax-exempt money market funds managed to reverse last week's outflows — but not by much — as they saw modest inflows of $600.6 million and total net assets inched up to $283.93 billion in the week ended April 9, according to the Money Fund Report, a service of iMoneyNet.com.