Buy side

The sell-off in municipal bonds finally appeared to sap some retail demand for state and local government debt last week as muni mutual funds reported taking in the paltriest amount of new money in six weeks.

A pair of billion-dollar deals — one in Texas and the other in Utah — will be part of an estimated $7.92 billion expected to be priced in the primary market this week, according to Ipreo LLC and The Bond Buyer. The mammoth deals will help pump some life into what has recently been a lackluster municipal market that’s short on volume.

Most of The Bond Buyer’s weekly yield indexes declined slightly, as the longer end of the curve ended the week flat to slightly firmer while the short end lost ground.

Tax-exempt money market funds slipped $1.08 billion to $337.07 billion for the week ending Sept. 13 after experiencing their first inflows in nearly a month the week before, according to the Money Fund Report, a service of iMoneyNet.com.

Harrisburg, Pa.’s near-miss on its general obligation debt, Warren Buffett’s gloomy foreshadowing of a “terrible problem,” and flirtations with a double-dip recession have not much changed the tenor of analysts’ expectations for the strength of municipal credit.

A component of the Basel III banking regulatory package would make it more expensive for banks to guarantee municipal debt, possibly limiting options for municipalities seeking to sell bank-supported debt.

Three sizable Ohio deals, a large New York City utility financing, and a two-pronged Texas education sale greet investors as part of an estimated $6.72 billion of new issues in the first full week of trading and underwriting after the late summer holidays, according to Ipreo LLC and The Bond Buyer.

Retail investors ignored the pullback in the state and local government debt market last week, ­committing the third-heaviest slug of new money to ­municipal bond mutual funds this year.

Tax-exempt money market funds managed to attract inflows for the first time in nearly a month, adding a modest $244.5 million for the week ended Sept. 6 to finish with $338.1 billion in total net assets, according to the Money Fund Report, a service of iMoneyNet.com.

Nearly all The Bond Buyer’s yield indexes rose this week, as tax-exempts weakened throughout the holiday-shortened week, erasing some of the pronounced gains taken in August.

A grand-slam judgment last month has emboldened the lawyers and investors seeking to recoup losses on $2 billion in municipal arbitrage funds run by Citigroup.

Investors continue to stuff cash into municipal bond mutual funds, exacerbating a supply-demand imbalance that has kept yields on tax-exempt bonds near historic lows.

With much of the market still in vacation mode following Monday’s Labor Day holiday, Minnesota plans to issue $899.6 million of general obligation bonds in the only sizable deal expected to arrive this week.

The dearth of tax-exempt issuance and exodus of investors from volatile equity markets have translated into lower yields across the curve in the traditional municipal market, prompting some analysts to question whether long-bond buyers will continue to assume the duration risk for such minimal gains.

The Bond Buyer’s weekly yield indexes were narrowly mixed, with some dipping to 43-year lows while others increased.

The unit investment trust has quietly blossomed into the dominant investing vehicle for Build America Bonds — the taxable municipal debt created under last year’s stimulus legislation.

Tax-free money market funds continued to seesaw during the week ending Aug. 30, declining $2.84 billion to $337.91 billion in total assets on the heels of nearly $600 million the previous week, according to the Money Fund Report, a service of iMoneyNet.com.

If there’s a day of reckoning on the horizon for municipal closed-end funds, the market hasn’t spotted it as investors continue to fork over a premium for the trusts.

BlackRock has raised more than $1 billion for a closed-end fund devoted to Build America Bonds, creating the largest public vehicle offering investors exposure to the new class of taxable municipal debt.

Municipal bond mutual funds reported another healthy slug of new money last week as demand for high-quality fixed income continued to drive investment flows.