Fixed income

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.

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.

The Boston fund company named D. William Kohli, Michael V. Salm and Paul D. Scanlon co-heads of fixed income.

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.

When it comes to municipal bonds, broker-dealers face an unusual challenge that is beyond their control.

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.

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.

The tide of cash washing out of municipal bond mutual funds continued to ebb last week as more and more of the “hot money” that flooded the industry the last two years seems to have escaped by now.

The Obama administration’s proposal to renew the Build America Bond program may suffer from the same problem it had the first time around, when the federal government didn’t think municipalities would use BABs that much.