The outlook for municipal bonds darkened last week, and lower tax-exempt bond yields seemed much less likely this fall than they did a few weeks ago.

The volume of new bond issues for sale is the biggest reason: Sales have increased sharply, probably much more than the municipal bond market expected, and investors have become more selective. Casualty insurance companies, faced with heavy payments to policyholders for Hurricane Andrew damage, are buying fewer new bonds and are selling some old ones.

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