Muni Bond Funds' Losing Streak Reaches 22 Weeks

Investors continued to pull money from municipal bond mutual funds for a 22nd straight week. Those funds that report flows weekly recorded outflows of $746 million for the week of Oct. 23, Lipper FMI data showed.

This represents an improvement from the previous week, when a revised $1.31 billion fled the market. But the current stretch of muni bond fund outflows has surpassed those of the dark days spanning November 2010 to August 2011 on a cumulative basis, Chris Mauro, head of U.S. municipals strategy at RBC Capital Markets, reported in a research brief.

The Lipper numbers reported Oct. 16 showed that the combined figure from weekly and monthly reporting funds stood at $58 billion from March through the week ended Oct. 16. During the equivalent period in 2010-2011, cumulative outflows totaled $49 billion, he wrote.

But flow numbers aren't moving in the same trajectory as before, he added.

"Weekly muni flows this year have been almost a mirror image of 2010-2011," Mauro wrote. "At week 33 in the 2010-2011 experience, flows were beginning to trend positive. Not so this time around as muni outflows remain stubbornly high."

Even with the negative demand trends, muni yields outperformed Treasuries for the week, boosted by a strong response to an upsurge in issuance and active trading in the secondary, traders said. Puerto Rico paper continued its rebound over the span.

Tax-exempt yields found firm footing by Wednesday after hovering earlier in the week. On Thursday, the market was strongest for maturities between eight to 11 years, and past 15 years. The triple-A 10-year yield plunged 10 basis points over the week to 2.50%, Municipal Market Data numbers showed.

The 30 year dropped 14 basis points over the period to 4.08%. The two year yield held at 0.35% for the 10th consecutive session.

Muni ratios to Treasuries moved little on the week. The 10-year ended at 100%, roughly where it began. The two-year slipped four percentage points to 109%. The 30-year ratio declined three percentage points to 113%.

Assets for all muni funds that report their flows rose to $280.2 billion following three consecutive weeks of declines. During the previous week they decreased to $278.6 billion.

The value of the holdings for weekly reporting funds increased by $2.02 billion. The week before, they fell by $1.54 billion.

The four-week moving average for all municipal bond mutual funds that report their flows weekly was $868 million of outflows, compared with $718 million of outflows the week before.

Weekly reporting long-term muni bond funds suffered outflows for the fourth straight week and the 33rd time in the last 34 weeks, losing $422 million. That compares to a revised $697 million that left the market for the week of Sept. 16.

High-yield muni bond mutual funds that report flows weekly experienced outflows of $68 million. The previous week, investors withdrew $167 million from the market.

Assets for high-yield funds that report their flows weekly rose to $36.27 billion, from $35.93 billion the week before.

The value of the holdings for high-yield funds increased by almost $400 million. Last week, they fell by $323 million.

The four-week moving average for all high-yield municipal bond funds that report their flows weekly showed $72 million of outflows, versus $45 million of inflows the previous week.

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