Munis Are The First Official Burning Theater: "There Is An Avalanche Of Bid-Wanteds" As Nobody Can "Accomodate This Much Sell-Side Pressure"

Over the past year, there have been many references to panicked sellers behaving like people in a burning theater. May 6 was the closest we got so far in 2010. Today we get our second confirmed spotting. Advice to parents: do not let your kids read this if your last name if Gross and their first is William: "Bondholders sought buyers for $1.4 billion in debt yesterday, the most since June 15, 2006, according to a Bloomberg bids-wanted index.    “Nobody’s bidding,” Tony Shields, a principal in the public-finance department at Williams Capital Group LP in New York, said in an e-mail. There’s “an avalanche of bid-wanteds, and there is just not enough liquidity to accommodate this much sell-side pressure.” There is another words for this condition. Bidless.

Per Bloomberg:

Municipal-bond yields jumped at almost every maturity, except rates on 1- and 2-year debt, which fell 4 basis points and 2 basis points, respectively, BVAL benchmark indexes show. Tax-exempts coming due in 25 years rose for a sixth straight day, climbing 14 basis points to 4.72 percent yesterday, the highest since Aug. 12, 2009.

Amid the rising yields, New York City cut today’s tax-exempt offering by two-thirds to $100 million citing “volatile market conditions,” the Office of Management and Budget said in a press release yesterday.

But, but, the market just hit a two year high for god's sake!!?? Are you telling us it is all a scam???

Long-term rates may increase more than 50 basis points next year if the Build America program isn’t renewed, according to a research note by analysts led by John Hallacy, manager of municipal research at Bank of America Merrill Lynch in New York.

The subsidy was left out of an agreement President Barack Obama struck with Republicans, some of whom have been critical of the program. While in the minority, the party has enough power to stall the legislation. U.S. Senator Ron Wyden, a Democrat from Oregon, who previously led an unsuccessful bid to extend the program, offered an amendment this week to include it in the tax bill.

Yeah, yeah: cut to the good part:

“Look at the yields; there’s not a lot of demand right now,” he said. “Eventually the yield curve is so steep, you’re getting 5 percent yields. Empirically that’s a pretty attractive level.”

The reduced demand, coupled with mutual-fund redemptions and rising Treasury yields has helped create a “perfect storm” for the tax-exempt selloff, Shields said.

Ah... bidless, and perfect storm. Two terms we haven't heard in the same article since late 2008.

There are only two solutions now: either the SEC institutes circuit breakers in muni trading (snicker), or America lets GETCO loose to be a DMM in muni land. Of course, that may mean that the world's busiest HFT firm, may finally let GM drop below $33. Which, in turn, may make all the lemmings who bought up the world's most ridiculously overpriced IPO, realize they are staring at one very big, and very hot potato in their retail accounts.