The prospect of higher taxes and impatience with yields available on cash continued to compel unparalleled amounts of money into municipal bond mutual funds last week.
Muni funds that report their figures weekly posted an inflow of $1.29 billion during the week ended Aug. 19, according to AMG Data Services.
This was the fourth straight time the weekly inflow topped $1 billion. Before this year, the weekly inflow exceeded $1 billion only 10 times since AMG started tracking this data in 1992.
The $1.29 billion figure only includes funds that report weekly. Some funds, representing about two-fifths of the industry's assets, report once a month.
For that reason, AMG Data considers the four-week average of inflows for all funds the best indicator of trends in mutual fund investing.
On that basis, muni funds are attracting far more cash than they ever have before.
Investors have entrusted to muni funds an average of $2.19 billion a week for the past four weeks, breaking last week's record.
Before last year, the heaviest rate of inflows based on the four-week average was $1.13 billion, in March 1993.
More than $44.7 billion in new cash from investors in 2009 - already an annual record - has fueled 22% growth in muni fund assets this year, to $415.71 billion.
The cash investors have handed over to muni funds this year is equal to 18% of the face value of new bonds sold, and is driving demand for bonds in a year when overall volume is down more than $50 billion from a year ago.
The latest week's inflows came during a strong week for municipals, with the yield on the 10-year triple-A dropping five basis points, according to the Municipal Market Data yield curve.
It is worth pointing out, though, that investors this year have seemed intent on stuffing muni funds with cash regardless of how the bonds are doing. Last week, which saw almost the same weekly inflow, came during a period when the yield on the 10-year triple-A rose three basis points.
Participants in the industry say much of the money flooding mutual funds is probably coming out of tax-free money market funds.
Money market funds offer safety and liquidity at almost no yield.
Investors this year have acquired a heartier risk appetite and are willing to move into longer-term and higher-risk products in search of better yields, some market participants say. Also, investors have grown bored with the paltry yields on money funds.
According to iMoneyNet, the average yield on tax-free money market funds last week was 0.1%, the lowest ever. Investors have spirited $45.6 billion out of tax-free money market funds this year, according to the Investment Company Institute.
