Buy side

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.

CHICAGO - The wave of upgrades on the horizon as rating agencies shift to a new global rating scale comes as governments face some of their toughest fiscal challenges in decades, and could sow uncertainty across the municipal market, investor analysts said at a recent roundtable here.

Weekly reporting municipal bond mutual funds had a net inflow of $89 million during the period ending Sept. 17, AMG Data Services reported.

Although the municipal market saw slight gains on Friday, the volatility that rocked Wall Street last week will continue to affect new-issue volume in the municipal market this week.

As skittish investors seek out the safest possible investments to protect themselves from the financial markets' latest crisis, short-term yields in the U.S. Treasury market have plunged noticeably lower over the past week as a result of a massive flight to quality, while tax-free money market yields have increased dramatically.

The Bond Buyer's weekly yield indexes rose dramatically, as tax-exempts grew continuously weaker amidst this week's credit crunch.

A $1.3 billion North Carolina education financing will command the spotlight in the primary market this week as the municipal market is expected to see an estimated $6 billion in competitive and negotiated new-issue volume, compared with last week's revised $4.2 billion, according to Thomson Reuters.

Weekly reporting municipal bond mutual funds had a net inflow of $212 million during the period ending Sept. 10, AMG Data Services reported.

Nearly all The Bond Buyer's weekly yield indexes declined this week, as municipals mostly followed the Treasury market in a mixed week during which gains outweighed losses.

After a two-week slump, tax-exempt money market funds were back in positive territory during the week ending Sept. 8, taking in $9.84 billion of inflows to settle at $524.12 billion in total assets, according to the Money Fund Report, a service of iMoneyNet.com of Westborough, Mass.

Weekly reporting municipal bond mutual funds had a net inflow of $252 million during the period ending Sept. 3, AMG Data Services reported.