For First Time in Five Weeks, Money Exits Muni Bond Funds

The volatility and uncertainty in the bond markets have caught up with the behavior of municipal bond fund investors. As a result, muni mutual funds saw outflows after four straight weeks of inflows.

The week ending Oct. 5 saw $113 million in outflows from muni bond funds that report their flows weekly, according to Lipper FMI.

In the week ended Sept. 28, there were net inflows of almost $600 million for muni bond funds that report their flows weekly, Lipper reported.

During the past couple of weeks, the market experienced dramatic shifts in yields in response to the Federal Open Market Committee’s decision to initiate Operation Twist. Also, this past week’s surge in large deals that flooded the primary market was poorly absorbed and left the muni world with a generally weaker tone, traders said.

With slower growth and more whipsawing yields, along with rising uncertainty over muni’s tax-exempt status for the long term, investors might have become discouraged about municipal funds again.

It wasn’t too long ago that money fled from muni bond funds between mid-November and early June, often by more than $1 billion a week. In the week of Jan. 19, investors in weekly reporting funds pulled more than $4 billion.

Assets for funds that report their flows weekly fell this week to $335.2 billion from $336.8 billion the previous week.

The value of the holdings for weekly reporting funds plunged by a whopping $1.6 billion. The week before, they reported an increase of $781 million.

The four-week moving average for all municipal bond mutual funds that report their flows weekly saw a $313 million inflow, down from a $483 million inflow the week before.

High-yield muni funds also saw their first outflows in five weeks.

Funds that report weekly saw outflows of $70 million, Lipper said. The previous week, high-yield funds reported inflows of $37 million.

Assets for high-yield funds that report their flows weekly ended at $41.89 billion, down slightly from $42.18 billion the previous week. The value of the holdings for weekly reporting funds fell by $225 million. Last week, they rose by $216 million.

The four-week moving average for all high-yield muni bond funds that report their flows weekly was a $47 million inflow, down from a $99 million inflow the week before.

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