The trend of money moving into longer-term municipal bond mutual funds continued last week as the pace of inflows remained near historic highs by every measure.
Muni funds that post their figures weekly reported an inflow of $1.5 billion during the week ended Sept. 2, according to AMG Data Services.
That was the second-heaviest weekly inflow since AMG started tracking the data in 1992. The heaviest weekly inflow was last week's $1.51 billion.
These numbers reflect only funds that report their figures weekly. Many funds, representing more than a third of the industry's assets, report figures once a month.
For this reason, AMG considers the four-week average for inflows for all funds the most precise indicator of trends in fund flows.
On that basis, inflows have eased off a bit. Investors are entrusting an average of $1.99 billion a week to muni funds based on the four-week average, down from the $2.33 billion record established a week earlier.
The current rate of inflows is still far higher than anything seen before this summer.
Investors have poured $49.72 billion to municipal funds this year, complementing $33.82 billion in market gains. Assets have grown 24.6% this year, to $426.2 billion.
George Friedlander, head of muni strategy at Morgan Stanley Smith Barney, this week predicted inflows would top $65 billion for the year, and could reach $70 billion.
That would more than double the previous record for inflows in a calendar year. The record for inflows over any 52-week period since 1992 is $38.27 billion.
Demand remains "off the charts," Friedlander said, mostly because leaving money in safe havens is too costly.
The average yield on a tax-free money market fund is 0.09%, according to iMoneyNet, the sickliest yield ever.
Synonymous with "cash," money market funds offer impregnable safety and liquidity. The practically non-existent returns on these funds are stimulating appetite for the income generated by municipal bonds, according to Friedlander.
A pullback in the stock market from its recent peak and jitters about the staying power of a recovery have propelled Treasury prices and in turn sparked a "grab-a-thon" in the municipal market, Thomson Reuters analyst Randy Smolik wrote in a report last week.
The grab-a-thon has extended into longer-term municipals, Smolik wrote, because light supply "leaves buyers little choice but to reach."
That reach is reflected in the tipping scales of fund flows. For the past few months, short-term funds have garnered far more than their fair share of the industry's flows.
From May through August, short-term funds collected 37% of total flows, despite managing less than 8% of the industry's assets.
Short-term funds last week commanded 27% of total flows, which is the lowest share since May 6. Long-term funds, meanwhile, commanded 43% of the flows, the highest proportion since May 27.
The shifting dynamic of demand is also expressed in the reshaping of the Municipal Market Data yield curve, which has flattened significantly in the last month.
The 30-year triple-A yields 352 basis points more than the two-year, based on the MMD scale. A month ago, the spread was more than 400 basis points.