Investors retreated the most in almost 19 years of indefinite

Investors retreated the most in almost 19 years of indefinite U.S. municipal bond funds in the week ended November 17 as the growing concern that cities and states are deteriorating finances.

municipal funds lost $ 3 billion in redemptions in the week, the most since the week ending January 8, 1992, according to Tom Roseen, senior analyst at research firm Lipper Fund. The funds added $ 34 million in the previous week, Roseen said.

"It has become a negative feedback loop," said Thomas Metzold, co-director of municipal investments in Boston Corp., based Eaton Vance, in a telephone interview yesterday. "The funds have to sell bonds to meet redemptions, putting pressure on prices, causing more write-downs."

Muni-bottom prices of bonds have fallen an average of 3.7 percent last month amid renewed concerns about inflation, an avalanche of supply of the transmitters and the speculation that the Republican Congress, after winning the control of the U.S. House on 02 November, the midterm elections will block aid to cities and states.

Yields on tax-exempt bonds high ratings due in 10 years rose 23 basis points on November 17, the biggest increase since March 2009. A basis point is one hundredth of a percent. The bond yield rose 3 percent yesterday, up to seven months.

"This started after the elections took place and it was obvious that the Republicans have a majority in the House of Representatives," said Metzold.

Build America

The results of the vote cast uncertainty over the level of federal support for states and cities will be in 2011 and about the prospects for an extension of the Build America Bonds said.

The program, which expires on December 31 typically provides a 35 percent subsidy on interest payments for municipal bond issuers liability. More than $ 150 million in Build America Bonds had been issued as of October 31, according to the Treasury Department.

The anticipation of maturity, which could increase the supply of traditional muni bonds exempt from taxes, has helped lower prices, Metzold said.

From 610 indefinite muni funds tracked by reportes, three had a positive return in the last month. California issuers had the biggest drop, falling an average of 5 percent for the month ended November 18, data from Morningstar Inc. show.

The 30.8 billion U.S. dollars in the medium term Vanguard tax-exempt fund, the largest municipal bond fund, fell 3 percent in the month ended Nov. 18. He gained 2.6 percent this year.

Closed Funds

municipal bond funds closed end it was an average of 6.4 percent in the month through November 18, according to Morningstar. Its deeper loss reflects increased use of leverage and its ability to trade at a discount or premium to net asset values.

The funds, on average, traded at a premium of 0.55 percent to its net asset value on October 15, according to Cecilia Gondor, an analyst of closed-end funds in the Thomas J. Herzfeld Advisors Inc. in Miami. That fell to 0.36 percent on Nov. 17.

closed muni funds extended their losses yesterday. The Nuveen Municipal Closed index declined 1 percent yesterday and 7.4 percent in the last month. 321.4 million U.S. dollars of Pimco Municipal Income Fund III fell 4.1 percent yesterday and 9.8 percent in the last month and 190.6 million U.S. dollars Nuveen Municipal High Income Opportunity Fund 2 fell 3, 2 percent yesterday and 9.5 percent for the month.

closed-end funds issue a fixed number of shares that trade on an exchange. When investors exit, which sell through the exchange, rather than open-end shareholders who redeem shares at net asset value to the fund.

Reassure investors

municipal bond funds received $ 35 billion in deposits this year before the withdrawal last week. Funds of $ 515,000,000,000 in late September, according to the ICI.

Eaton Vance and Western Asset Management, a unit of Legg Mason Inc. of Baltimore, have been quick to reassure customers in an attempt to prevent further withdrawals.

"This is an event-driven cash flow is not a credit event," said Joseph P. Deane, a muni-fund manager in Pasadena, California, Western Asset Management, yesterday in a conference call with financial advisers. "The market is very cheap."

Deane is at 5.7 billion U.S. dollars of Legg Mason Western Asset Managed Municipal Fund, part of the West of the $ 38 billion in municipal bond assets. Fell by 4.5 percent last month.

Stephen Ban, a managing director with Chicago-based Nuveen Asset Management, said the Federal Reserve plan to buy $ 600 billion in assets as part of an effort monetary stimulus also lower muni-bond prices.

Facilitate the Fed

"The Treasury rates are rising and municipal bonds have taken the example of that on top of oversupply" that expiry of Build America Bond program can create, "said Ban.

Nuveen, a unit of private equity firm Madison Dearborn Partners LLC, manages $ 73 billion in assets in municipal bonds, including open-ended and closed-end funds.

Along with Deane and Metzold, called the current situation as a buying opportunity.

"I put all my year-end bonus in my back yesterday," Metzold said, referring to the $ 5,800,000,000 Eaton Vance National Municipal Income Fund. The fund lost 8.2 percent in the last month.