Investments

Some banks are taking a detour around the complicated and expensive process of guaranteeing a municipal government’s bonds by just buying the bonds themselves.

According to survey results released Wednesday, when RBC Capital Markets asked 100 state and local government experts at The Bond Buyer Texas Public Finance Conference last month whether they would buy municipal bonds for their own portfolios, all 100 said yes.

IOWALe Mars Community School DistrictFeb 28, 2011 . . . . . . $7,985,000

CALIFORNIAAntelope Valley Healthcare DistrictFeb 25, 2011 . . . . . . $18,725,000

ARIZONASaddle Mountain Unified School District No. 90Feb 24, 2011 . . . . . . $10,000,000

The pressure on municipal bond mutual funds is fading rapidly as a much less panicked tone in the state and local government debt market has stemmed the exodus of cash from the industry.

An already-skimpy municipal market is expected to see volume levels plummet even further this week when a paltry $1.79 billion of new issuance trickles into the primary, according to Ipreo LLC and The Bond Buyer.

The Dormitory Authority of the State of New York last week gave final approval to $150 million of bonds for a university and preliminary approval to $72.8 million for lower education projects.

ILLINOISPlainfield Community Consolidated School District No 202Feb 24, 2011 . . . . . . $11,300,000

ALABAMAAlabama Board of EducationFeb 24, 2011 . . . . . . $4,745,000

Tax-exempt money market funds rose $1.14 billion to $325.79 billion in total net assets for the week ending Feb. 21, according to the Money Fund Report, a service of iMoneyNet.com.

The recent bout of panic selling by investors in municipal bond funds reflects several factors, including headline risk due to predictions of widespread defaults, rising interest rates, the extension of the Bush-era tax cuts, and rallying equities.

ILLINOISCook County School District No. 122Feb 23, 2011 . . . . . . $2,965,000

ALASKANorth Slope BoroughFeb 23, 2011 . . . . . . $33,020,000

Two state-specific municipal bond portfolios managed by BlackRock Inc. were slated to be closed to investors effective Wednesday, a day after the firm began liquidating the funds' investments, according to a Feb. 18 addendum to the funds' prospectuses.

For all the headlines about the budget woes of state and local governments, banks see them as good clients. Most market experts say there are plenty of investment-grade municipalities to court.

Standard & Poor's Tuesday revised its outlook to positive from stable on the A rating of Western Kentucky University's 2002 and 2003 consolidated educational buildings revenue bonds.

CONNECTICUTSouthington (Town)Feb 22, 2011 . . . . . . $15,355,000

ILLINOISElmwood Community Unit School District No. 322Feb 17, 2011 . . . . . . $215,000

Business as usual, in a market where banks have been complacent about their seemingly safe municipal bond holdings, would be big mistake, experts say.