Buy side

The municipal bond market followed up a holiday week with relatively steady yields in the face of increasing supply, slack Treasuries and a stock market rally.

Assets of tax-exempt money market funds fell by a modest $150 million as total net assets finished at $286.23 billion in the week ended Nov. 21, according to the Money Fund Report, a service of iMon­eyNet.com.

Traders anticipate that the recent delicate balance between supply and demand in the muni market will be maintained even as issuance ramps up this week in the face of rollover funds.

Analysts continue to warn that employee pensions and retirement benefits are a growing problem for municipal government finances.

The December-January reinvestment season in the municipal bond market will arrive at a time of rock-bottom yields and historically low new issuance.

Investors seeking diversity, liquidity and competitive yields when compared to other fixed-income products are trying a relatively new alternative: municipal bond exchange-traded funds.

Some market participants are concerned that the current version of the Volcker Rule would hurt the municipal bond market.

The Thanksgiving holiday is expected to significantly cool off new supply in the primary market this week.

Municipal bond mutual fund inflows fell somewhat from last week's tremendous infusion, but they were still strongly in the black. Muni bond funds saw a sixth straight week of inflows, and a 10th week of them out of 11.

The municipal market has been gorging on a lot of new issuance over the past few weeks, but apparently not more than it can digest.

Tax-exempt money market funds lost $530.1 million and settled at $286.24 billion in total net assets in the week ended Nov. 14, according to the Money Fund Report, a service of iMoneyNet.com.

A new study by the Kroll Bond Rating Agency on municipal bond defaults dating back to the Great Depression casts a positive light on the muni industry, saying there will be "no material increase" in defaults over the next three to five years.

Investors this past week gave the tax-exempt market a big boost of confidence with their heaviest inflows to municipal bond mutual funds since September 2010.

The waves of issuance rolling into the municipal primary market the past few weeks continue to grow. Last week's volume, at more than $9 billion, approached record territory for 2011, and this week's anticipated issuance should easily set a new high for the year, at nearly $12 billion.

Municipal bonds saw a largely mixed week of trading in a tight range. Subsequently, so did muni bond indexes, which ranged from unchanged to up no more than five basis points on the week.

Tax-exempt money market funds recaptured nearly all of last week's losses, generating inflows of $2.36 billion to settle at $286.77 billion in total net assets in the week ended Nov. 7, according to the Money Fund Report, a service of iMoneyNet.com.

Retail reaction to the announcement late Wednesday that Jefferson County, Ala., filed the largest municipal bankruptcy in U.S. history is likely to be muted, yet will still be closely monitored, portfolio managers say.

Standard & Poor's warned that retiree health care benefits are a growing burden for public universities.

The municipal market new-issuance machine should churn out slightly less volume for the primary this week. But it's still operating at a relatively high capacity, as far as 2011 has gone.

Investors are still confident about tax-exempts, but less so than in previous weeks. Still, municipal bond mutual funds saw a fourth straight week of inflows, and a eighth week out of nine.