Buy side

Municipal bond yields over the course of U.S. history have reflected fluctuating rates of inflation, changing tax policies and the Federal Reserve's monetary policy.

Investors may be wondering where municipal bond yields are headed after they reached 45-year lows last week.

Municipal bond investors have indicated through Thursday's sell-off and trench-scraping yields that the market can handle more primary issuance.

Ratios of municipal to Treasury bond yields over the past three months have shown a degree of volatility that has complicated a standard valuation of tax-exempt debt for investors.

The tax-exempt bond market continues to see marked investor interest through heavy inflows to municipal bond mutual funds.

Through Wednesday, the municipal bond market held to the script drafted for early January 2012.

A month-long trend of postitive inflows for tax-exempt money market funds came to an end as investors pulled $2.82 billion from the sector in the week ended Jan. 16 and total net assets dropped to $293.75 billion, according to the Money Fund Report, a service of iMoneyNet.com.

Investor confidence in munis shifted into a higher gear as municipal bond mutual funds saw the heaviest week of inflows in almost two years.

As far as primary issuance in the municipal market goes, this week's volume should weigh in at levels roughly where January has been so far: light.

A week-long rally pushed municipal bond yields sharply lower, with rates measured by two Bond Buyer indexes falling to levels not seen since 1967.

Tax-exempt muni money market funds ushered in the first full week of the year with $5.80 billion of new cash — its sixth week of positive inflows — as total net assets grew to $296.57 billion in the week ended Jan. 9, according to iMoneyNet.com.

Now as 2012 gets underway, mom-and-pop investors are back and looking to glean some of the performance that made the sector shine in the fourth quarter of 2011.

Primary market volume for the week appears to be less than some in the industry expected following last week's paltry pickings. But this should be positive for pricing and involve less need to unload paper.

Most investors agree that municipal bonds in 2012 will not match 2011's robust returns. But there are opportunities at various points in the yield curve and among lower investment-grade credits.

Muni bond mutual funds continued their hot hand for a fifth straight week.

Muni bond yields have mostly started 2012 where 2011 left off: outperforming Treasury yields.

Tax-exempt money market funds started the new year on a positive note, as a modest $857 million of new cash increased total net assets to $290.77 billion in the week ended Jan. 2, according to the Money Fund Report, a service of iMoneyNet.com.

When it comes to direct bank loans, the profile of the borrower should determine disclosure standards, said panelists on a recent webinar hosted by the Council of Development Finance Agencies.

Nearly all of The Bond Buyer's weekly yield indexes declined this week, as the municipal market followed Treasuries and grew firmer by several basis points in each session.

The municipal market didn't need to do a lot to have a decent week.