Muni Market Still Missing Institutional Demand

Prices in the municipal bond market have weakened in the last few weeks, with investors growing shy over very low absolute yields.

With new-issue supply growing, underwriters of new bond sales have seen more risk in being caught with unsold bond proceeds. Thus, new issues last week were priced cheaply to sell quickly, but this forced benchmark muni bonds and statement evaluations cheaper, as well.

While our market still lacks persistent demand from institutional buyers -- so yields may continue to rise in the near term -- these concessions by bond sellers have created the best value in shorter maturity high-grade muni bonds all year. This week, the new issue calendar, at least by the standards of 2009, is substantial, in theory putting pressure on prices, but the rapid evolution of events in the financial markets make performance expectations impossible.

Market Update

...