Fixed income

A federal cap on tax-exempt bonds could gradually wean investors and issuers off the muni market and toward a permanent, expanded Build America Bond market that has a flexible subsidy rate, a new report from the Center for American Progress argues.

In what marks the largest outflow activity so far this year, tax-exempt money market funds lost a hefty $5.17 billion and total net assets fell to $306.93 billion for the week ended April 25, according to the Money Fund Report, a service of iMoneyNet.com.

Rep. John Tierney, D-Mass., plans to soon introduce a bill that would require all new munis to be taxable direct-pay bonds with a 25% federal subsidy rate — a proposal drawing a frosty reception from issuers and underwriters.

Tax-free municipal money market fund assets declined by $2.25 billion to $316.80 billion in the week ending April 11, representing a major acceleration of outflows from the previous week, according to the Money Fund Report, a service of iMoneyNet.com.

March was the third month in a row that retail investors were net buyers of individual municipal bonds, and it also was the fifth consecutive month that mom-and-pop investors sold more shares of muni mutual funds than they purchased, according to the March Transparency Report published by BondDesk Group LLC.

President Obama announced the framework of a plan Wednesday to shrink the deficit $4 trillion over 12 years, and urged House and Senate leaders to appoint teams to negotiate a final bipartisan plan by the end of June.

“I’ve been guessing we’re in the foothills of a long 20-year rise with cyclical interruptions,” said Dan Fuss, who runs the Loomis Sayles Bond Fund.

Lawmakers on Tuesday moved forward with two legislative efforts to overhaul the U.S. tax code, which would either halt, or threaten, tax-exemption for new muni bonds.

The municipal securities market is beset by problems that defy easy solutions, academics and experts told municipal analysts Friday.

Tax-exempt municipal money market funds lost nearly $3 billion in the week ended March 28 as total net assets fell to $319.30 billion, according to the Money Fund Report, a service of iMoneyNet.com.

A former municipal derivatives trading desk manager at Banc of America Securities LLC has pleaded guilty to one criminal count of engaging in a conspiracy to falsify bank records in connection with a scheme to rig bids and pay kickbacks for investment agreements and other financial contracts in the muni market.

Despite volatility in the municipal market, sales of individual tax-free bonds to retail investors have been brisk even as cash withdrawals from muni mutual funds are still high, experts say.

The Financial Industry Regulatory Authority is developing a system that will tell its examiners and firms’ compliance officials whether firms that sold munis with material-event disclosures passed that information on to customers.

The global flight from risk continued to bolster the municipal bond market on Wednesday as the prospect of a nuclear meltdown in Japan enhanced the appeal of the shelter of low-risk bonds.

But $193 million leaves equity funds.

Munis Are Muted; Analysts Weigh In

Thin Demand For Light Supply

Tax-exempt money market funds saw modest inflows of $639.9 million in the week ended March 7, increasing total net assets to $323.67 billion, according to the Money Fund Report, a service of iMoneyNet.com.

Municipal bonds have notched a good week as governments’ willingness to refrain from borrowing means investors with money to spend mostly have to chase existing bonds in the secondary market.

The Securities and Exchange Commission on Wednesday unanimously agreed to propose amendments to its Rule 2a-7 that would remove all credit rating references from the rule, which requires money market funds to invest in high-quality and very liquid short-term securities.