Weekly Reporters Saw Moderate Inflows Over the Past Two Weeks

Flows into municipal bond mutual funds remain moderate by recent standards.

Municipal funds that report their numbers weekly had $340.2 million in new money the week ended June 16 and $300.4 million the week ended June 9, according to Lipper FMI.

All municipal funds, including those that report their flows monthly, have been posting inflows at a rate of $596.9 million a week based on the four-week moving average.

The “normal” pace of flows has become a moving target.

Funds coughed up $10.8 billion in the fourth quarter of 2008 before accumulating a record $78.55 billion in 2009.

Flows in 2010 have generally been strong by historical standards, but are running well below the robust pace established last year.

With the average price of bonds in the S&P National AMT-Free Municipal Bond Index down half a percent in March, muni mutual funds reported $1.6 billion in market losses last week to post their steepest decline since November.

The tax-free fund industry manages $497.1 billion.

Flows have remained steady in the face of heightening hysteria over municipal credit quality in the press.

Chris Johns, who manages a $281.6 million Colorado mutual fund for Aquila Group of Funds, said the drumbeat of dire warnings has probably slowed retail demand for municipal bonds.

“The retail investing public may be more cautious these days,” he said. “It’s affected demand.”

Johns said higher tax expectations have helped insulate tax-exempt municipal bonds from the turbulence plaguing most other financial markets the past two months.

The press reports on impending fiscal doom for state and local government credits, Johns said, but it does not report on the steps most governments have taken to trim their budgets.

He foresees “problems to come,” but does not anticipate a wave of mass defaults.

And he does not view the sell-off in municipals the past two weeks as particularly meaningful.

The yield on the triple-A 10-year muni bond, based on the Municipal Market Data scale, has jumped 17 basis points this month, to 2.97%.

That yield is still historically very low.

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