Buy side

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.

Reversing a five-week trend of outflows, tax-exempt money market funds gained $2.09 billion and finished the week ending Oct. 10 with $290.61 billion in total net assets, according to the Money Fund Report, a service of iMoneyNet.com.

Municipal bond yields ratcheted up more quickly the last three weeks than any other period in 2011. But instead of worrying the market, alienated investors are happy to see yields finally returning to attractive levels.

U.S. public finance downgrades at Fitch Ratings in the second quarter were at their highest level in eight years, according to a recent new report from the agency.

Municipal bonds are at some of their cheapest levels, relative to Treasuries, in market history. The problem is, most muni buyers don't care.

The municipal market will see about $1 billion less in new issuance this week after struggling to digest last week's supply as yields rose across the curve, forcing some issuers to stay on the sidelines until yields fall again.

The volatility and uncertainty in the bond markets have caught up with the behavior of municipal bond fund investors. As a result, muni mutual funds saw outflows after four straight weeks of inflows.

Muni yields plummeted in the wake of the Federal Reserve's Sept. 21 monetary policy meeting, prodding issuers to tap the capital markets. With back-to-back weeks of $8 billion in new supply, rates are now jumping back up.

Although outflows from tax-free money market funds dipped below $1 billion mark this week, they continued to put a damper on the industry as investors withdrew $773.1 million and total net assets fell to $288.52 billion in the week ended Oct. 3, according to the Money Fund Report, a service of iMoneyNet.com.

The municipal market can expect $8.26 billion of new issues this week, a slight increase from last week, despite rising yields across the curve.

Municipal bond mutual funds saw inflows for a fourth consecutive week, doubling last week's numbers.

The common talking point that municipal bonds are now driven by credit rather than rates seems a bit off the mark in a week like this.

Tax-exempt money market funds continued to suffer large outflows for a third straight week as investors withdrew $2.83 billion and total net assets fell to $289.29 billion in the week ended Sept. 26, according to the Money Fund Report, a service of iMoneyNet.com.