The six-week streak of municipal bond fund inflows has ended as concern over rising interest rates weighed on the market.
Funds reported $212.2 million of net outflows for the week ending March 26, after $107.3 million of inflows the week before, Lipper FMI reported. There have only been four weeks of outflows out of 12 weeks this year.
"It's likely related to interest rates," Matt Fabian, managing director at Municipal Market Advisors, said. "It's the market's reaction to the potential change in the Federal Reserves' policy, or to the perceived change in Federal Reserve policy. People can move assets in and out of municipal mutual funds just on expectation."
On March 19 Federal Reserve chairwoman Janet Yellen said that the Fed may increase interest rates in April 2015. Investors had previously predicted that the Fed would wait until the third or fourth quarter of 2015 .
Immediately after her statement short- and intermediate-term bonds began selling off. Prices on bonds fell for five straight days, according to Municipal Market Data, with yields on bonds maturing within five years jumping as much as 31 basis points by Tuesday's market close before they steadied on Wednesday.
Investors believe that because yields steadied and then dropped later in the week, and because the first quarter has been strong overall for munis, this week's outflows may be an outlier.
"Munis' recovery this week helps reduce the risk that there will be more outflow," Fabian said. "We're also at the end of the quarter, which was a positive quarter. That should help the funds keep the assets."
Assets of all weekly reporting municipal funds decreased to $281.88 billion, from $282.32 billion, Lipper reported.
The four-week moving average dropped to $54.598 million from $169.388 million.
Long-term municipal mutual funds that report weekly said outflows slowed to $103.086 million from $117.362 million of outflows the previous week.
Their assets crawled down to $150.39 billion from $150.44 billion. The four-week moving average outflow frin the long-term funds fell to $54.31 million from $158.96 million the week before.
Inflows to high-yield mutual funds decreased to $100.1 million from the previous week's $151.9 million. Assets rose to $39.2 billion, from $39 billion the week before, while the four-week moving average inflow shrank to $152.6 million from $166.1 million.
