Buy side

Kroll Bond Ratings got one step closer to rating muni credits last week by announcing its first big public finance hire. The next step is to release a comprehensive default study to show the market it can be a serious rival to the three dominant rating agencies.

The municipal market can expect to see a surge of municipal issuance this week, with $5.28 billion coming to market, up from last week’s revised $2.55 billion.

The Bond Buyer's weekly indexes indicate that tax-exempts outperformed the Treasury market this week — a trend that almost never happens when the two markets are rallying.

Higher borrowing costs for state and local governments as a result of the sovereign downgrade? Hardly. Or at least: not yet.

When Moody's Investors Service warned of a possible downgrade to the United States' sovereign credit last month, it said hundreds of triple-A muni credits ¯ including five of the 15 states it rates Aaa ¯ could likely follow.

Calm, yet cautious. Skeptical and apprehensive. Unfazed. Those are the mixed emotions that both retail and institutional investors have amid all the speculation and uncertainty swirling through the municipal market following last week's unprecedented downgrade of the U.S. by Standard & Poor's.

Nobody knows exactly what the long-term impact of the United States losing its AAA rating from Standard & Poor's means for municipal bonds, but that didn’t stop the experts from speculating.

Moody’s Investors Service called the second-quarter a "critical test" for liquidity facilities supporting the variable-rate demand market. So kudos all around, for the market passed with "near-universal success."

Even with municipal bond yields across the curve dropping to 2011 lows last week, borrowers are still not jumping at the opportunity to come to market.

In a historic week for the nation and the financial markets, money market funds saw outflows across the board. As Congress was busy ironing out a resolution to the debt-ceiling crisis before the Aug. 2 deadline, investors withdrew $1.23 billion from tax-exempt money funds in the week ended Aug. 1, according to the Money Fund Report, a service of iMoneyNet.com.

Health care and housing remain two of the most risky sectors in the municipal market, with the federal health care bill and the sluggish real estate market contributing to skepticism about the sectors. But muni experts say some distressed debt is safe enough to be a buying opportunity.

While the speculative hysteria about across-the-board municipal debt defaults has calmed, many investors are still wondering what bonds remain at risk and how many municipalities will end up in bankruptcy.

The market can expect $3.25 billion in new volume this week, showing issuers still plan to borrow despite fears prompted by the endless debate about raising the federal debt limit. Issuance will be down from last week’s revised $4.6 billion.

Outflows from tax-exempt money market funds continued for a second straight week as investors yanked $2.09 billion and total net assets dropped to $301.18 billion in the week ending July 25, according to the Money Fund Report, a service of iMoneyNet.com.

The Bond Buyer's weekly indexes reflected a bit of selling pressure this week, which traders attributed to general uncertainty caused by the political gridlock in Washington.

With Congress facing an Aug. 2 deadline to raise the federal debt ceiling and the threat of a U.S. default looming, municipal market professionals are concerned about possible long-term credit affects stemming from the would-be solution crafted by Republicans and the White House to resolve the deficit crisis.

The municipal market can expect $4.12 billion of new issuance this week, about half of last week’s $8.32 billion.

Municipal bonds followed up a particularly strong week of new deals with inflows.

Anyone not convinced the municipal market has returned to a state of health need look no further than The Bond Buyer's weekly indexes.

Tax-exempt money market funds saw an end to their short-lived period of inflows as $797.9 million fled the sector and total net assets declined to $303.27 billion in the week ended July 18, according to the Money Fund Report, a service of iMoneyNet.com.