Exodus From Muni Bond Funds Marks 19th Week, at $690M

Muni bond mutual funds recorded their 19th straight week of outflows as demand for tax-exempts stumbled.

Weekly reporting muni bond funds had outflows of $690 million for the week of Oct. 2, the latest Lipper FMI numbers showed. That compared with $159 million that fled the market the previous week.

There was talk in the industry that prior week’s light outflows showed market demand had recovered sufficiently to register inflows as early as the week of Oct. 2. The latest numbers show such speculation was premature.

Though outflows increased they remain lower than the $1- to $2-billion weekly hemorrhaging that occurred between June and September, Chris Mauro, head of municipal strategy research at RBC Capital Markets, wrote in a research brief.

“While this week’s downturn in muni flows is a disappointing development after last week’s more optimistic flow report, the municipal market can take some consolation in the fact that it is not alone,” Mauro said. Taxable fixed-income funds posted weak positive flows, Mauro wrote, while equity funds reported their first week of net outflows since Jan. 2.

Tax-exempt yields moved little throughout the week. Volume remained light and activity moderate. Low, yet manageable, issuance, the shutdown of the federal government and the debt ceiling threat preoccupied traders all week, leading to increased uncertainty and fewer large moves in any direction.

The triple-A tax-exempt 10-year yield finished the week through Thursday flat at 2.54%, Municipal Market Data numbers showed. The 30-year muni yield also closed the week flat at 4.11%. The two-year yield inched up one basis point to 0.37%.

Treasury yields mostly slouched back a basis point or two for short- and medium-term maturities. The 30-year ticked up two basis points to 3.71%.

Muni ratios to Treasuries mostly held steady past the front end; the two-year got cheaper by six percentage points, settling at 112% on the week. The 10-year closed roughly flat at 97%, while the 30-year finished at 111%.

Assets for all muni funds that report their flows slipped to $283.2 billion after rising two weeks in a row. During the previous week they increased to $283.4 billion.

The value of the holdings for weekly reporting funds increased by $477 million. The week before, they jumped by $1.87 billion.

The four-week moving average for all municipal bond mutual funds that report their flows weekly was $963 million of outflows, against $1.12 billion of outflows the week before.

After a rare week of inflows, long-term muni bond funds that report weekly recorded outflows of $353 million for the week of Oct. 2. They reported inflows of $239 million the previous week, driven largely by the high-yield component, according to Mauro.

Prior to the week of Sept. 25, long-term muni bond funds had suffered 29 consecutive weeks of outflows.

Weekly reporting high-yield muni bond funds saw inflows narrow to $33 million for the week of Oct. 2. They attracted inflows of $399 million for the week of Sept. 25. High-yield muni funds remained positive for a third straight week.

Assets for high-yield funds that report their flows weekly climbed to $36.62 billion, from $36.46 billion the week before.

The value of the holdings for high-yield funds rose by $130 million. Last week, they increased by $358 million.

The four-week moving average for all high-yield municipal bond funds that report their flows weekly showed $111 million of inflows, against $37 million of inflows the previous week.

For reprint and licensing requests for this article, click here.
Buy side
MORE FROM BOND BUYER