Money continues to flow into municipal bond mutual funds at a record-setting rate as investors become more comfortable exiting ironclad, short-term safe havens.
Investors entrusted $1.04 billion to muni funds that report their figures weekly during the week ended May 27, according to AMG Data Services.
This was the fourth consecutive week that inflows topped $1 billion and the fifth week out of six.
Before this stretch, weekly inflows exceeded $1 billion only 10 times, never in consecutive weeks, according to AMG data dating back to the early 1990s.
The weekly figure excludes certain major fund families that report monthly.
Among all muni funds, including these families, cash is pouring in at $1.83 billion a week, based on a four-week moving average.
This pace routs the previous record.
Before this year, the record pace of inflows on this basis was $1.37 billion.
Before last year, the record was $1.14 billion.
"Some of the pure fright and total feeling that the markets might collapse is being eliminated, and there's more confidence and liquidity in the markets," said Ron Schwartz, a portfolio manager at StableRiver Capital Management. "We've seen a lot of money coming back."
In fact, Schwartz said muni portfolio managers are grappling with a luxurious problem: rivers of money coming in just when muni prices are no longer so attractive.
On Oct. 15, the yield on the 10-year, triple-A muni hit 4.86%, according to the Municipal Market Data yield curve scale, the plumpest yield since 2000.
Unfortunately for portfolio managers, this fat yield coincided with a hemorrhaging of cash from muni funds.
Investors withdrew more than $10 billion from muni funds between Sept. 17 and Jan. 7, according to AMG.
Managers lacked the cash to take advantage of what many called a historic buying opportunity.
Now that muni funds have been cash-flow positive every week this year, having attracted more than $25 billion since Jan. 1, the yield on the 10-year bond has tumbled to 2.97%.
On May 20, the yield hit 2.78%, its lowest since MMD started keeping track in the early 1980s.
"The opportunities aren't as good as they were," Schwartz said.
In its weekly report, EPFR Global said growing risk appetite continues to drive fund flows.
The fund tracker pointed out that the spread of a JPMorgan index tracking emerging-market debt over the yield on the comparable Treasury is now below 450 basis points.
The spread had breached 800 basis points at the height of the credit crisis late last year.
Also signaling growing risk appetite are flows into high-yield bond funds and commodity and energy sector funds.
Muni fund assets total $391.19 billion, up 14.4% for the year.