Low yields continue to do little to deter investors from stuffing more cash into municipal bond mutual funds.
Municipal funds that report their figures weekly posted a net inflow of $577.7 million during the seven-day period ended Aug. 4, according to Lipper FMI.
Among all funds, including those that report their figures weekly and monthly, inflows are tracking at a weekly pace of $914.7 million, based on the four-week moving average — the briskest pace of new money since March.
Funds also reported $2.28 billion in market gains for the week as yields on municipal bonds collapsed to record lows. Municipal bond values are up 1.1% since the end of June and 2.3% this year, based on the S&P National AMT-Free Municipal Bond Index.
Last week’s market gain was the fund industry’s strongest expansion since October 2009.
So far this year, $23.8 billion in new money and $19.3 billion in market gains have combined to push municipal fund assets to a record $509.1 billion.
Muni fund industry assets have expanded 9.6% this year, after mushrooming 35.8% last year.
Vincent Harrison, a portfolio manager at Dupree Funds, said much of the demand for municipal funds stems from a lack of alternatives.
Tax-free money market funds yield an average of 0.04%, according to iMoneyNet, and the 10-year Treasury yield is 2.85%.
“There’s not really anywhere else to go with [cash] right now,” said Harrison, who manages eight municipal funds with $1.2 billion in assets. “Money market rates are terrible, and I think that just on a yield basis, for the quality you’re getting, it’s tough to beat munis.”
Harrison believes his funds are commanding some new cash that is “not typically municipal bond money” because of the weak yields on other instruments.
Dupree runs state-specific funds for Kentucky, Alabama, Mississippi, North Carolina, and Tennessee.
The flagship Kentucky fund, with $897.9 million in assets, yields 3.7%, based on the latest dividend.
