Buy side

Investors pulled cash out of municipal bond mutual funds last week for just the third time in a year and a half, despite a strong week for state and local government debt.

As the market closes the books on June’s low volume, investors with proceeds from recent coupon and maturity payments to reinvest hope July perks up following this holiday-shortened week’s relatively light calendar.

Nearly all of The Bond Buyer’s weekly yield indexes declined this week as tax-exempts grew firmer amid light secondary trading.

Tax-exempt money market funds lost $1.44 billion in the week ending June 28, settling at $350.9 billion, according to the Money Fund Report, a service of iMoneyNet.com.

The payments that cigarette manufacturers make to the states are dwindling as people smoke less, posing the latest setback to tobacco bonds — a sector that’s enjoyed little good news since the financial crisis.

Municipal bond mutual funds commanded a modest sum of new money last week. Muni funds reported $151.5 million in new money from investors during the week ended June 23, according to Lipper FMI.

Los Angeles serves up a $1.2 billion tax and revenue anticipation note sale in the short-term market this week while issuers in New York deliver a pair of substantial deals in the long-term market.

CHICAGO — Yields on floating-rate municipal prepaid gas bonds with ties to BP have spiked to nearly 9% from less than 0.5% as credit analysts continue to cut their ratings on the oil giant.

The Bond Buyer’s weekly yield indexes were narrowly mixed this week as municipals remained unchanged through much of the week, with the tone shifting from negative to positive.

Tax-exempt money market funds rebounded slightly the week ending June 21 to post inflows of $485.3 million after losing nearly $3 billion in the prior reporting period, according to the Money Fund Report, a service of iMoneyNet.com. The influx caused total assets to rise to $352.34 billion from $351.84 billion.

Vanguard is jumping into the municipal bond exchange-traded fund fray, proposing to launch three muni ETFs with the lowest fees in the industry.

Wells Fargo is merging nearly $2.2 billion of Evergreen Investments municipal bond mutual funds into existing Wells funds as part of the bank’s purchase of Wachovia.

Essential service bonds continue to be considered among the safest municipal market investments, faring better than general obligations bonds in the current economic environment, on the back of the rate-setting ability of issuers and investor perception that these bonds are more immune to fiscal stress, according to market sources.

A $1.75 billion sale from California’s Bay Area Toll Authority will join a $1.4 billion offering of subordinate sales-tax revenue bonds from the Puerto Rico Sales Tax Financing Corp. to dominate the primary activity this week as the market prepares for an estimated $8.21 billion in new long-term volume, according to Ipreo LLC and The Bond Buyer.

Flows into municipal bond mutual funds remain moderate by recent standards.

The sovereign debt crisis in Europe is coupling with the general malaise in financial markets to make life easier for tax-free money market funds by boosting key short-term interest rates.

The Bond Buyer’s weekly yield indexes rose this week, as tax-exempt bond prices fell for most of the period despite a mild recovery in tone over the past two sessions.

After a short-lived tide of inflows, tax-exempt money market funds lost $2.94 billion and finished with $351.84 billion for the week ending June 14, according to the Money Fund Report, a service of iMoneyNet.com.

Invesco PowerShares plans to launch its second exchange-traded fund devoted to Build America Bonds, highlighting both the proliferation of municipal ETFs and the growing importance of taxable state and local government debt.

Revenue bond issues for large transportation initiatives in three states and two sizeable note deals will be at the forefront of the primary market this week.