Municipal Bond Funds See $29.3M Cash Outflow

For the 11th straight week, municipal bond funds reported cash outflows.

The weekly reporting funds saw $29.255 million of outflows in the week ended July 15, after experiencing outflows of $305.707 million in the previous week, according to the latest Lipper data.

This brought to 14 out of 29 weeks this year the funds have seen cash withdrawals.

The four-week moving average remained negative at $409.882 million after being in the red at $507.779 million in the previous week. The moving average has now been negative for eight weeks in a row. A moving average is an analytical tool used to smooth out price changes by filtering out fluctuations.

Long-term muni bond funds, however, experienced inflows, gaining $34.223 million in the latest week, after seeing outflows of $147.939 million in the previous week. It was the first week of cash flowing into the long-term funds since April 29.

Intermediate-term funds again recorded inflows, of $20.109 million after seeing inflows of $53.613 million in the prior week.

High-yield muni funds saw inflows of $14.513 million in the latest reporting week, after seeing an outflow of $122.823 million the previous week. And exchange traded funds saw inflows of $45.314 million, after experiencing outflows of $27.250 million in the previous week.

Analysts have suggested technical reasons as well as headline risk surrounding credits such as Puerto Rico have contributed to the continuing cash redemptions.

Municipal bond funds have been impacted somewhat by the deteriorating financial situation in Puerto Rico, according to Van Eck Global's senior municipal strategist James Colby.

"Mainstream news articles showed how widely Puerto Rico credits were held — and I emphasize the word 'were' because many investors told their advisors 'get me out' and some professionals said 'these securities don't fit with our investment criteria anymore.' "

Investors continue to look at the municipal bond market as a unique entity, he said, one that is supposed to deliver a constant income stream while providing high-credit quality. And when that doesn't always happen, "It plays into some of the redemption flows."

Some felt it was just better to exit the muni market now and then revisit it at a later date when things had calmed down, he said, adding that while investors are quick to exit, they are slow to come back.

Is there a silver lining?

"As I look at yields rising, and performance at or near zero," Colby said, "I am optimistic at the possibility of having a pretty strong finish for municipal bond performance in 2015."

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