Weekly Reporters Post Inflows of Over $1 Billion

Strengthening risk appetite and the prospect of an end to the recession continued to galvanize the current of cash flooding municipal bond mutual funds last week.

Muni funds that report their figures weekly posted an inflow of more than $1 billion for the 17th time in history during the week ending July 29, according to AMG Data Services.

Seven of those weeks have been in 2009.

All municipal funds - including those that report their figures monthly - have been reporting inflows of $1.33 billion on average for the past four weeks.

That represents a slowdown from the last few weeks, but it is higher than any rate of inflows the industry has seen until last year.

The roughly 640-fund muni fund industry now manages $403.6 billion in assets, representing 18% growth for the year.

The funds have attracted $37.29 billion in cash and reported $23.92 billion in market gains in 2009.

Matt Fabian, managing director of Municipal Market Advisors, has begun to wonder whether the flows are more than just a hot streak.

They may signal a long-term shift in investor preference, he told Bloomberg Radio this week.

The latest inflows coincide with apparently encouraging news about the economy.

The Dow Jones industrial average on Friday hit its highest mark since Nov. 4 and is up 5% for the year.

The Commerce Department on Friday reported the economy shrank 1% in the second quarter, based on a preliminary reading. That is a slower rate of contraction than economists expected, and the most moderate quarterly slowdown since the second quarter of 2008.

"The decline was an awful lot slower than the previous three quarters," Joel Naroff, chief economist at Naroff Economic Advisors, wrote in a report. "The details hint that third-quarter growth may not only be positive, but could be very strong."

In addition, a measure of volatility in financial markets known as the VIX spent most of last month under 30, after averaging 45 between the Lehman bankruptcy and the end of June.

EPFR Global in its weekly report wrote that better corporate earnings than anticipated have coaxed still more money out of safe havens and into riskier assets.

According to iMoneyNet, investors this year have ferried $167.5 billion out of money market funds, which offer unimpeachable safety and liquidity and minimal returns.

Some of this money is landing in stock and bond funds as investors become more comfortable with economic prospects, EPFR Global said.

Muni funds are enjoying a fat portion of bond fund flows because of concerns that the federal stimulus program will force higher taxes, EPFR said.

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