A week after the biggest weekly outflow in history, municipal bond mutual funds this week reported the third-biggest.
Municipal bond mutual funds that report their figures weekly posted a net outflow of $2.27 billion during the week ended Nov. 24, according to Lipper FMI.
This follows the $3.1 billion of redemptions the previous week, draining almost $5.4 billion from the market in two weeks just as municipalities are trying to sell enormous amounts of debt.
State and local governments are slated to float more than $10 billion of bonds next week, according to data from The Bond Buyer and Ipreo.
The mutual fund inflows that buoyed the market for almost two years have reverted.
Investors entrusted $69 billion to muni funds in 2009, and $30.3 billion through the first three quarters of 2010, according to the Investment Company Institute.
Flows began slowing down in September, and preliminary data shows they slowed further in October.
This month, the market saw its first real outflows since the financial crisis.
Other than one week in October 2008, the past two weeks have seen the two biggest weekly outflows by a margin of more than $500 million.
High-yield funds in particular saw heavy outflows, with $1.24 billion coughed up last week and an additional $549.4 million this week.
Market sources said the Standard & Poor's downgrade of about half the universe of tobacco bonds forced high-yield muni funds — which are big buyers of tobacco bonds — to sell.
Fund flows ignored the rebound in the municipal bond market, where long-term yields recovered more than 30 basis points this week, according to Municipal Market Data.
Funds posted a market gain of $4.1 billion on their holdings, compared with a $10.6 billion loss the previous week.
Between outflows and market losses, the municipal bond mutual fund assets shrunk by $11.85 billion the past two weeks, to a total $512.5 billion.
