Buy side

Moody’s Investors Service kicked off a wide-scale “upward shift” in municipal credit ratings yesterday, assigning stronger grades to 34 states and Puerto Rico.

Two large state general obligation deals consisting of taxable Build America Bonds are headed to the market this week amid an estimated $5.58 billion in total new volume, according to Ipreo LLC and The Bond Buyer.

Investors withdrew more cash from municipal bond mutual funds than they invested last week for the second time in less than a month, possibly heralding the end of the tidal wave of money that has washed over the industry for more than a year.

Nearly all The Bond Buyer’s weekly yield indexes declined this week, as the municipal market rebounded from last week’s losses.

Reversing the gains they accumulated last week, tax-exempt funds were hit with outflows of $2.10 billion and finished with total net assets of $368.51 billion for the week ending April 12, according to the Money Fund Report, a service of iMoneyNet.com.

Anyone studying the path of yields on double-A or triple-A rated municipal bonds over time might want to put a little asterisk next to April 2010.

Many of the biggest institutions that own municipal bonds beefed up their holdings last year as state and local government debt became something of a preferred asset.

Investors once again entrusted money to municipal bond mutual funds last week after briefly withdrawing money for the first time in well over a year.

Chicago will come to market with a $1.04 billion offering of revenue bonds this week on behalf of Chicago O'Hare International Airport, leading roughly $6.7 billion in expected new issuance, according to Ipreo LLC and The Bond Buyer.

Municipal closed-end funds continue to surge to new peaks despite the specter of higher interest rates threatening to throw a wet blanket on all the fun.

Nearly all The Bond Buyer's weekly yield indexes rose this week as weakness inside of 20 years on the municipal yield curve persisted through Wednesday, before subsiding yesterday.

Tax-exempt money market funds recouped some of the outflows they suffered for the week ending April 5, as total assets rose $2.103 billion to $369.44 billion, according to the Money Fund Report, a service of iMoneyNet.com.

Bank of America Merrill Lynch will pay New Jersey $4.87 million and repurchase auction-rate securities sold to investors in a settlement agreement over alleged misinformation regarding the floating-rate securities.

Mitchell Savader traveled to Philadelphia yesterday to deliver a reality check. Numerous newspapers and magazines, including Barron's and the New York Times, have run eye-popping headlines in the past few weeks.

Last week, investors did something they have not done in well more than a year: withdrew more money from municipal bond mutual funds than they put in.

The jury is still out among investors on how the municipal bond market will respond during the transition phase of the recalibration of tens of thousands of muni credits to a global rating scale by Fitch Ratings and Moody’s Investors Service.

Fitch Ratings lifted its rating on more than 38,000 municipal bond issues yesterday under a systematic overhaul of the way it assigns grades to the credit quality of state and local governments.

A handful of reasonably sized deals will head to market this week while many municipal participants continue to be on hiatus due to religious and spring break holidays.

In another week of hefty outflows from money market funds, investors withdrew $2.74 billion out of their tax-exempt accounts, leaving behind $367.33 billion in total assets for the week ending March 29, according to the Money Fund Report, a service of iMoneyNet.com.

State and local governments pulled in their biggest-ever tax haul in the fourth quarter as they leaned on property tax collections to help recoup shortfalls in other types of revenue.