Investors continue to withdraw money from municipal bond mutual funds. Muni bond funds that report their flows weekly had net outflows of $296 million in the week ended May 25, according to Lipper FMI.
Last week’s numbers, when investors withdrew just $108 million from muni funds, again looked as though the market was finally poised for a week of inflows. But instead, this week marked the 28th in a row that investors pulled money out of weekly reporting funds. Still, the pace of money leaving municipal bond funds remained relatively small. Only three weeks ago, investors withdrew almost $800 million.
Money is flowing into muni bond funds, according to the Investment Company Institute, but only at a trickle. Muni bond funds saw inflows of $63 million for the week ending May 18, the most recent data available.
That’s up slightly from the $38 million inflow the previous week.
Both sets of numbers show sluggish flows. The difference between municipal bond investors stands as one reason for the tepid flow numbers, according to Chris Mier, chief investment strategist at Loop Capital Markets LLC.
While direct purchasers of munis typically rely more on professional financial advisers for their bond transactions, and are thus more aware of the most current industry trends, information, and numbers, muni fund investors generally do not, Mier said.
As a result, investors would more likely shrink from investing in municipal funds after months of hearing endless talk about “headline risk” that foretold of the industry’s imminent collapse through major state and local government defaults.
“The direct buyers have been active on some of the recent deals in the last three weeks or so,” Mier said. “And there seems to be good direct purchasing, but obviously not much is happening on the mutual fund side. They might get more involved, with a time lag.”
As of the start of 2011, mutual fund investors constituted 18% of the overall $2.93 trillion muni bond market, according to the latest numbers compiled by the Federal Reserve.
Assets for funds that report their flows weekly hovered around $316 billion for the second straight week, Lipper numbers show.
The value of the funds’ holdings edged up by $172 million — a far cry from the increase of at least $1.6 billion seen over the previous five weeks by funds that report their flows weekly. Prices for municipal bonds over the past week mostly stalled. It was the eighth week in a row that net-asset values gained.
Among all municipal bond mutual funds that report their flows weekly, the four-week moving average dropped to a $323.7 million outflow from a $395.6 million outflow the week before.