Money Stampedes to Muni Bond Fund Exits

A rally in the municipal bond market this week couldn’t slow the stampede from muni bond mutual funds. They recorded outflows for a 17th consecutive week.

Those muni bond mutual funds that report flows weekly recorded outflows of $1.10 billion for the week ended Sept. 18, Lipper FMI numbers showed. Outflows decreased from the previous week, when they measured $1.90 billion.

Muni yields rallied across the curve after the Federal Open Market Committee announced Wednesday afternoon that it had decided there was insufficient evidence of economic strength in recent economic data to warrant a reduction in the Fed’s bond purchases or a change to short-term interest rates.

Triple-A tax-exempt yields responded by falling 22 basis points over the the week since Friday to 2.61%. The 30-year yield dropped 16 basis points over the week to 4.23%. The two year declined five basis points over the week to 0.38%.

Muni yields outperformed their Treasury equivalents across all but the front end of the curve. Muni ratios to Treasuries fell accordingly in the longer end, and rose for securities maturing in two years.

From Friday through Thursday, the 10-year landed three percentage points richer at 95%. The 30-year also ended three percentage points richer at 111%; the two-year finished the period cheaper, rising 14 percentage points to 112%.

Assets for all muni funds that report their flows weekly increased to $281.9 billion, following 10 straight weeks of decline. The previous week they fell to $280.2 billion.

The value of the holdings for weekly reporting funds jumped $3.40 billion. The week before, they rose $123 million.

The four-week moving average for all municipal bond mutual funds that report their flows weekly was $1.51 billion of outflows, against $1.77 billion of outflows the week before.

Investors still don’t favor long-term muni bond funds. Those long-term funds that report flows weekly recorded outflows for a 29th consecutive week, at $473 million, against $1.04 billion for the week of Sept. 11.

Weekly reporting high-yield muni bond funds had inflows, following 10 consecutive weeks of outflows. For the week of Sept. 18, investors allocated $181 million into high-yield funds, against $168 million that left funds one week earlier.

Assets for high-yield funds that report their flows weekly climbed to $35.70 billion, from $34.93 billion the week before.

The value of the holdings for high-yield funds rose by $597 million. Last week, they increased by $18.2 million.

The four-week moving average for all high-yield municipal bond funds that report their flows weekly showed $147 million of outflows, compared with $307 million of outflows the week before.