Buy side

WASHINGTON - Secondary market trading volume surged to more than $851 billion in the third quarter of 2011, the highest so far this year, but still fell 8.5% short of the almost $931 billion reached during the same period last year, the Municipal Securities Rulemaking Board said Wednesday.

Moody's Investors Service calls it "the great credit shift." RBC Capital Markets calls it the new paradigm. Meredith Whitney calls it ... well, let's move on. The point is: the municipal bond market has transformed dramatically the last few years, opening doors for some and shutting doors for others.

Low interest rates have significantly colored the outlook industry veterans have for the municipal market.

Analysts and managers say they are finding value in the municipal market by taking advantage of attractive intermediate yields and buying opportunities presented by credits that find themselves in the headlines, among other strategies.

November is starting off with a relatively strong week of new issuance in the municipal market, with two deals totaling at least $1 billion each. The amount of new deals continues to climb after a strong October.

Investor confidence in tax exempts continued this past week as municipal bond mutual funds saw a third straight week of inflows, and a seventh week out of eight.

Tax-exempt money market funds continued their losing streak again this week as they posted $1.31 billion of withdrawals — a little more than half of last week’s outflows — and total net assets dropped to $286.7 billion in the week ended Oct. 24, according to the Money Fund Report, a service of iMoneyNet.com.

The Bond Buyer's weekly yield indexes outperformed Treasuries during a week that saw middling investor interest in the primary market and a dramatic sell-off in Treasuries during the latter half of the week.

A credit rating agency wants borrowers to shine more light on a practice they've been using increasingly to issue debt.

After several weeks of relatively high volume, municipal issuance isn't cooling off just yet, with $7.37 billion expected to come to market, down only slightly from last week's revised $7.71 billion.

Municipal bond mutual funds saw a second straight week of inflows, and a sixth week out of seven.

Coming off three weeks of price losses, municipal bonds staged a decent rally this week despite a jump in supply and weakness in Treasuries.

Super downgrades remain rare events, but they reflect a more aggressive posture by the rating agencies, market observers say.

After recouping recent losses and ending a five-week trend of outflows, tax-exempt money market funds lost $2.50 billion for the week ended Oct. 17, as total net assets dropped to $288.10 billion, according to the Money Fund Report, a service of iMoneyNet.com.

Proposals to limit the tax-exemption on municipal bonds get short shrift from the majority of market participants, but some state and local government experts on Tuesday seemed resigned to the notion that tax-reform efforts will inevitably do just that.

Market participants are still grappling with the pros and cons of the growing direct purchase sector for tax-exempt bonds.

CHICAGO - A weak real estate market continues to plague the long-troubled senior living sector, though providers have enjoyed some stabilization in the last year, Standard & Poor's said in a new report.

For all the talk of credit issues driving the municipal bond market this year, only a minority of participants actually cite it as a top determinant.

Though municipal yields are rising across the curve from September's record lows, issuers are bringing more debt to market. A total of $6.68 billion is expected in the primary this week, up from last week's revised $4.49 billion.

The sell-off over the past two weeks has brought municipal bond prices to levels that, apparently, are more acceptable to investors. Consequently, muni bond mutual funds saw inflows, after a week of outflows.