Investors poured money into municipal bond mutual funds last week for the first time in nearly four months, possibly stanching a bloodletting that began in September.
Muni funds that post weekly numbers reported inflows of $208.1 million during the week ended Jan. 7, AMG Data Services reported last week.
Though a modest inflow, this was the first time since the week ended Sept. 17 that investors put more money into muni funds than they took out.
"It's a big positive step," said W. Michael Petty, who manages muni funds at Dreyfus Corp. "The fact that you don't have big outflows is a real positive for our market. We could do a lot with just plain flat cash flow."
Funds reporting weekly figures saw outflows of more than $10 billion in the previous 15 weeks, according to AMG.
Investors withdrew $4.64 billion in October, including nearly $2.3 billion in a single week.
During those weeks, munis - along with nearly every other type of investment - suffered a global flight from risk that chased cash out of stocks and most kinds of bonds and into Treasury debt.
"Fear - I don't think there was anything more to it than that," said Jeff Tjornehoj, who researches mutual funds for Lipper Inc., referring to the flight into Treasuries. "The bond markets themselves were spiraling into a fear trap, where anything that wasn't U.S. Treasury paper was being sold left and right."
Among all muni funds, including those that report monthly, assets in the final four months of 2008 shriveled to $341.93 billion from more than $395 billion.
Total assets recovered to $346.51 billion last week.
The recovery reflects more than inflows - it also reflects a rally in the muni market that has pulled yields on high-quality paper back to where they were a year ago.
After spiking to more than 4.85% in mid-October, the yield on the 10-year triple-A rated muni compressed last week to 3.34%, according to Municipal Market Data.
The Bond Buyer Municipal Bond Index is now at 101-24, up from 91-15 a month ago. The rally in munis coincides with a sell-off in Treasuries, which benefited through much of the fourth quarter from ravenous demand for safety and liquidity. The yield on the 10-year Treasury, which squeezed to less than 2.08% at one point last month, last week pushed up to about 2.5%.
AMG Data last week reported inflows into every type of fund it tracks: domestic and international stock funds, taxable bond funds, exchange-traded funds, money-market funds. Corporate junk bond funds reported their biggest inflow since September 2003, AMG Data said.
Petty said there are "compelling reasons" people should invest more money in muni funds.
"The entry point right now for the municipal asset class is as good as it's ever been," he said. "The big selling pressure may be over but we need to put some positive performance in here to bring more assets into the party."
