Buy side

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.

The municipal market this week should see its biggest slate of new issuance so far in 2011, with $8.27 billion expected to come to market.

CHICAGO - Moody's Investors Service this week said it views positively recent court rulings in Colorado and Minnesota dismissing litigation that challenged legislative cuts to retirees' pension cost-of-living increases, and expects the rulings will spur other states to act.

Weekly yield indexes fell precipitously this week thanks to a flight to quality among Treasuries coupled with seasonal demand for tax-exempt paper.

Cash flowed into municipal money market funds for a second week in a row, though noticeably less than the billion dollars the industry recouped in the previous week, according to the Money Fund Report, a service of iMoneyNet.com.

Against a backdrop of investors continuing to pull money from tax-exempt bond funds, the municipal market’s first-ever exchange-traded fund to focus specifically on closed-end muni funds has launched.

Municipal portfolio managers say they are finding value in various pockets of the market, ranging from premium bonds to potentially refundable debt.

CHICAGO - Fears expressed by some municipal market participants that cuts in state aid will spawn a wave of local government defaults are overblown, according to a new report by Nuveen Asset Management that examines 12 Cleveland-area issuers.

The biggest deal expected this week is Wednesday's $760 million taxable and tax-exempt offering from the Dormitory Authority of the State of New York, which will be priced by Wells Fargo. A retail order period on Tuesday will precede institutional pricing.

Muni market strategist Christopher Holmes has departed JPMorgan to join Moody's Investors Service.

The municipal market can expect $1.3 billion of new issuance for this holiday-shortened week, down dramatically from last week’s revised $8.1 billion.

Just as a strong rally in Treasuries helped make munis look good in the first three weeks of June, so too did a major sell-off in the month's final week make tax-exempts appear weak.

In the event that Moody's Investors Service strips the U.S. sovereign credit of its gilt-edged rating, top-rated state and local governments would be more at risk of a downgrade than similarly rated corporate or structured finance products.