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Market Dominated by Strong Outflows for a Second Straight Week

For a second consecutive week, flows to muni bond mutual funds got hammered.

Funds that report their flows weekly recorded outflows of $423 million for the week ended Dec. 26, Lipper FMI numbers show. That's up from the week ended Dec. 19, which saw outflows of $2.31 billion from weekly reporting funds, the largest such hemorrhaging in almost two years.

For the week ended, Jan. 26, 2011, weekly reporting funds recorded outflows of more than $4 billion. For context, muni bond mutual funds have recorded their 63rd week of positive flows in the past 67 weeks prior to the outflows.

The muni market entered the holidays on relatively sound technical footing. Then demand slowed. Investors, much as all muni bond participants, have kept one eye toward the fiscal cliff, and the possible effects negotiations toward its resolution will have on muni bonds' tax-exempt status. Regardless of the outcome, muni participants are gearing up for higher tax rates in 2013.

Assets for all muni funds that report their flows weekly have fallen for the third consecutive week to $317.6 billion, from $317.7 billion the week before.

The value of the holdings for weekly reporting funds was positive for the first time in three weeks, rising by $351 million. The week before, it fell by $3.92 billion.

The four-week moving average for all municipal bond mutual funds that report their flows weekly was $484 million of outflows, down from a $242 million loss the week before.

Long-term bond funds that report their flows weekly reported a second straight week of strong outflows, to the tune of $353 million. This represented a large increase from the $1.91 billion of outflows they reported the week before.

High-yield muni funds also saw robust outflows for the week. Flows had been positive for 51 of the previous 55 weeks prior to last week's outflows.

High-yield funds that report weekly saw $261 million in outflows, Lipper said. The previous week, they reported $939 million in outflows.

Assets for high-yield funds that report their flows weekly decreased for a second consecutive week to $43.11 billion, down from $43.33 billion the week before.

The value of the holdings for weekly reporting high-yield funds fell by $43.7 million. Last week, they fell by $646 million.

The four-week moving average for all high-yield municipal bond funds that report their flows weekly was $205 million of outflows, dropping from $109 million of outflows the week before.

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