Investors handed over another fat slug of cash to municipal bond mutual funds last week as money continued to flood out of safe havens and into higher-yielding assets.
Investors during the week ended April 29 entrusted $772.1 million to muni funds that report their figures weekly, according to AMG Data Services. The inflow follows last week's $1.13 billion inflow, which was the heaviest in three years.
Investors may be regaining their appetite for risk.
Amid talk of "green shoots," a resurgent stock market, and signs of potential economic stabilization, money is re-emerging from the shelters of money-market funds and Treasury bonds.
According to EPFR Global, investors since early March have withdrawn $78.84 billion from money market funds, which these days offer safe returns at a minuscule yield.
Treasuries, the world's safe haven of choice, have sold off. The yield on the 10-year Treasury has swelled about 50 basis points in the last six weeks. At 3.12% as of Thursday's close, the yield is at its highest since November.
The cash jumping out of safe perches is landing in stock and bond funds, according to EPFR.
Investors are "accepting more risk as they search for higher returns," EPFR Global wrote in its weekly report.
All muni funds, including those that report their figures monthly, have reported $16.24 billion in inflows this year.
Other than the previous week's inflow, last week's was the heaviest in almost a year.
"People do seem to be willing to take a little more risk," said Evan Rourke, a portfolio manager at Eaton Vance. "The news in the last week or so has been reasonably positive, with signs of stabilization at the moment. The economic data has generally been indicative of at least a slowing of the contraction. ... The market psychology's shifting just a little bit."
Good news from the past week includes an uptick in consumer sentiment and the Federal Reserve reporting "the pace of contraction appears to be somewhat slower."
Munis are not the only asset class benefiting from this shift in psychology.
The Standard & Poor's 500 Index is up almost 30% since early March. EPFR said U.S. bond funds, commodities funds, technology funds, and emerging-market stock funds have been winners in this latest phase.
EPFR pointed out muni funds accounted for about half of the inflows into U.S. bond funds last week. This marks a departure from the recent pattern, in which munis accounted for more like 10% or 15% of bond fund inflows, EPFR said.
The Cambridge, Mass.-based fund tracker said tax-exempt debt is in the spotlight because people expect the government to pay for its economic stimulus with higher taxes.
The surge in inflows is a welcome turnaround for municipal funds, which suffered a devastating fourth quarter last year.
Total assets at muni funds shriveled from almost $400 billion in early September to as low as $337 billion in mid-December, according to AMG.
Investors took more than $9 billion out of muni funds in the fourth quarter, and the funds sustained market losses of about $42 billion.
Assets are now back up to $376 billion, bolstered by the inflows and $17.45 billion in market appreciation.
Total assets were flat last week as market losses offset investor inflows.