Detroit's bankruptcy filing and Chicago's downgrade provided strong drivers for a ninth straight week of outflows from municipal bond mutual funds.
Weekly reporting muni bond funds recorded outflows of $1.23 billion for the week ended July 24, Lipper FMI reported, up slightly from the $1.56 billion investors withdrew the previous week.
The municipal market slogged through a difficult week. Although investors cottoned to the week's largest deal, $900 million in Bay Area Toll Authority, San Francisco, revenue bonds, others arrived with concessions of up to 10 basis points on yields for bonds with longer maturities.
Several other large deals in the primary market were postponed. Traders reported a weaker secondary market early in the week, but demand improved by Thursday.
The long end of the yield curve felt the brunt of buyer frustration. Since last Friday, yields for 30-year tax-exempts rose 17 basis points to 4.31%. The 10-year triple-A yield increased 10 basis points to 2.77% over the span. Two-year yields leveled off at 0.43%.
Treasuries sold off across the curve on the week from Friday, though they outperformed munis.
That left muni ratios to Treasuries in cheap territory. The 10-year sits around 107%. The 30-year ratio hovers around 118%, while the two-year dropped 17 percentage points since Friday to 126%.
Assets for all muni funds that report their flows weekly plunged more than $4.5 billion to $296.1 billion, a third straight week of decline. The previous week they reported a $300.7 billion drop.
The value of the holdings for weekly reporting funds plummeted $3.15 billion. The week before, they rose $1.04 billion.
The four-week moving average for all municipal bond mutual funds that report their flows weekly was $1.22 billion of outflows, compared with $2.04 billion of outflows the week before.
Weekly reporting long-term muni bond funds continued their long streak of outflows, at $953 million. That compares with $1.03 billion that left long-term muni bond funds last week. Outflows to long-term funds continued for a 21st consecutive week. High-yield muni bond funds that report flows weekly also recorded outflows for the ninth time in 10 weeks, at $232 million. The previous week, they reported $246 million in outflows.
Assets for high-yield funds that report their flows weekly rose to $38.04 billion, from the $39.13 billion reported the week before.
The value of the holdings for high-yield funds decreased by $678 million. Last week, they rose by $47 million.
The four-week moving average for all high-yield municipal bond funds that report their flows weekly showed $136 million of outflows, from $378 million of outflows the week before.