Buy side

For the past seven years, Peter Demirali has urged clients to put money into taxable municipal bonds — a small, neglected sector of the industry.

By the end of 2007, investors recognized the relationship between municipal bond yields and Treasury yields did not mean what it used to.Click to see larger version of chart.Now, some investors have taken it a step further. Some ignore the relationship altogether.

Investors poured the most money into municipal bond mutual funds in years last week amid a powerful rally in the tax-exempt market.

With underwriters and investors still buzzing about last week's historic Build America Bond blitz in California, the municipal market is gearing up for the arrival of another significant slate - highlighted by $2 billion of Florida bonds - that will bring an estimated $6.28 billion in total issuance to the market in the last week of April, according to Ipreo and The Bond Buyer.

Tender-option bond programs last year lost a lot of money on a controversial premise: that long-term municipal bond yields are fundamentally and inefficiently too high.

Tax-exempt money market funds fell by $6.96 billion to end the week of April 20 with $474.51 billion in total assets, according to the Money Fund Report, a service of iMoneyNet.com.

The Bond Buyer’s weekly yield indexes declined this week on the back of a surge of Build America Bonds in the primary market, including more than $5 billion of the new securities from California.

When he decided to retire as team leader of the municipal bond group at OppenheimerFunds Inc. nearly four years ago, Ronald H. Fielding never expected the transition phase to last so long.

Cash influxes into municipal bond mutual funds continued last week as fund assets gained steadily.

Call it a bond bonanza.

The Bond Buyer’s weekly yield indexes declined as the municipal market firmed up in nearly all sessions due to strong retail demand and the first two deals containing Build America Bonds were priced in the primary market.

Tax-exempt money market funds settled at $481.47 billion in total assets after losing $2.89 billion for the week ending April 13 — two days before the official tax payment deadline on Wednesday and on the heels of a short-lived period of inflows last week, according to the Money Fund Report, a service of iMoneyNet.com.

To understand why Josh Gonze likes local school district debt in California, one has to blow the dust off the state’s constitution, which was ratified in 1879.

The Moody's Investors Service downgrades of Ambac Assurance Corp. and Berkshire Hathaway Assurance Corp. this month highlight the new paradigm for insured municipal bond funds. They are now not all that different from plain muni funds.

After 25 years in the municipal bond industry, senior portfolio manager Ronald H. Fielding — one of the longest-serving investors in the industry and a pioneer investing in tobacco bonds — has announced that he will retire from OppenheimerFunds Inc. effective May 20.

Thornburg Investment Management this month launched a high-yield municipal bond fund seeking to take advantage of distressed prices on what the company claims are fairly stable credits.

The new-issue calendar will be somewhat lackluster this week with an estimated $3.75 billion of competitive and negotiated volume expected to arrive, compared with last week when issuers priced a revised $2.79 billion ahead of the Passover and Easter holidays, according to Thomson Reuters.

Municipal bond mutual funds kept attracting cash last week as investors continued to embrace state and local government debt.

After nearly a month of consistent outflows, tax-exempt money market funds managed to gain $1.79 billion and settle at $484.36 billion in total assets for the week ending April 6, according to the Money Fund Report, a service of iMoneyNet.com.

Participants in the municipal bond market say they are seeing more investors buy bonds from other states despite the tax exposure as fatter yields outweigh in-state tax considerations.