NEW YORK -- Local governments sold $4.9 billion of bonds this week in what could be the last big burst of supply this year.
Next week, shortened by the Thanksgiving holiday, states, cities and municipalities plan to sell $1.4 billion of bonds. The amount of new bonds also is expected to decrease in the coming weeks on concern computer trading systems may fail at the crossover to the year 2000."Supply has definitely declined," said Bill Grady, who oversees $17 billion of munis for Allstate Insurance Co. in Northbrook, Ill.
While the pickings are getting slimmer for new issues, the secondary market is flooded. For example, the Standard & Poor's Blue List, which gauges securities firms' inventories of tax-exempt bonds, has had more than $2 billion of bonds for 30 of the past 35 trading days and was at $2.08 billion this morning. The list is normally considered heavy at more than $1 billion.
"Bid lists are still huge," said Chris Capone, who oversees about $2.5 billion as head of munis for the Bank of New York.
Investors with cash can command lower prices now, Capone said. And the bargains may get bigger toward year's end because muni bond funds will be selling bonds to pay redemptions to investors pulling cash out of munis for tax purposes.
Demand for munis has been weak as mutual funds suffered a net withdrawal of $400 million for the first 11 months of the year, according to a forecast by TrimTabs.com Investment Research in Santa Rosa, California. For the same period last year, muni mutual funds received a net inflow of $14.1 billion, TrimTabs said. Investors took their money out as 1162 state-specific muni funds suffered a loss of 3.13 percent so far this year, according to Bloomberg Analytics.