Buy side

For the second week in a row, tax-free money market funds showed signs of slow but steady recovery, demonstrated by the arrival of $6.12 billion in new cash, which caused assets to inch up to $490.86 billion for the week ending Oct. 13, according to the Money Fund Report, a service of iMoneyNet.com.

A quest for cash in a highly illiquid market and a lack of investor confidence in the tax-exempt bond market in general are among the factors that have sent the yield for The Bond Buyer 40 Bond Index soaring in recent days.

The arrival of a handful of new issues this week will help revive the recently lifeless primary market after it all but shut down for nearly the last month.

Weekly reporting municipal bond mutual funds had a net outflow of $1.1 billion during the period ending Oct. 8, AMG Data Services reported.

Nearly all The Bond Buyer's weekly yield indexes increased this week amid "very sloppy" conditions in the municipal market.

Outflows have continued to slow and more new cash has begun to find its way back to tax-exempt money market funds over the last week.

Amid the ongoing turmoil that plagued the financial and credit markets in the first half of 2008, the nation's commercial and savings banks experienced slight negative growth in their municipal bond portfolios. The holdings declined by 1.0% to $142.7 billion on a cost basis and by 2.7% to $141.1 billion on fair-value basis through June 30, according to data from Sheshunoff Information Services Inc.

The deep freeze that the primary market has endured the last two weeks may begin to thaw a bit this week, aided by the much-anticipated news on Friday that the House approved the $700 billion financial rescue plan. But some market participants said it was too early to expect new-issue business to bounce back quickly given that the nation's economic crisis is far from over.

Weekly reporting municipal bond mutual funds had a net outflow of $848 million during the period ending Sept. 24, AMG Data Services reported.

The Bond Buyer's weekly yield indexes rose this week, amid continued market turmoil and uncertainty over a federal bailout package.

Tax-exempt money market funds continue to show signs of gradual improvement this week. The pace of outflows have slowed and the attractive high rates compared to taxable money market funds are enticing yield-starved investors looking for buying opportunities as Congress continues to grapple with the nation's current economic slump.

WASHINGTON - Morgan Stanley announced Monday it will refinance illiquid auction-rate preferred shares with tender options bonds, created from municipal securities in 10 of its closed-end municipal funds, to escape high interest rates and provide liquidity to its auction-rate securities investors.

DALLAS - Rating analysts have placed $1.23 billion of prepaid gas bonds from Salt Verde Financial Corp. on watch for possible downgrade based on the credit rating of counterparty Citigroup.

The primary market will again be severely diminished this week as several new issues remain in limbo against a backdrop of continued weakness in municipals and intense anxiety in the overall financial markets as a result of last week's government takeover of Washington Mutual and the pending resolution by Congress of the $700 million financial industry rescue plan.

Weekly reporting municipal bond mutual funds had a net outflow of $398 million during the period ending Sept. 24, AMG Data Services reported.

Tax-exempt money market funds began recovering some of the nearly $30 billion of outflows they suffered in the past seven days, but market participants say there's still a feeling of queasiness among traders and investors in the midst of a disconnect between municipal and Treasury securities as the government bailout program unfolds.

The Bond Buyer's weekly yield indexes pushed higher this week, as municipals grew consistently weaker in the wake of more than a week's worth of market turmoil.

CHICAGO - Despite remaining largely insulated from the turmoil in the capital markets so far, the years-long strong operating performance across the nonprofit health care sector could be headed for a decline in 2009, particularly among smaller, lower-rated credits, Fitch Ratings analysts said in a report on median ratios on the industry released yesterday.

Standard & Poor's Tuesday dropped its rating on the $709 million issue of Main Street Natural Gas Inc. Series 2008A project gas revenue bonds to default level, following a series of events that could potentially leave bondholders as unsecured creditors in Lehman Brothers Holdings Inc. Chapter 11 bankruptcy proceedings.

Despite all the volatility that permeated the tax-exempt market in the second quarter of 2008, the household sector chased higher absolute yields and increased its ownership of municipal debt by 1.3% to $912.4 billion, compared with $900.4 billion in the prior three-month period, according to quarterly data as of June 30 released by the Federal Reserve Board this week.