The exodus of cash from municipal bond mutual funds appeared to slow last week.

Clients withdrew $163 million from the funds during the week ending Nov. 12, AMG Data Services reported, down from outflows of $253 million the previous week.

The numbers showed clients are removing money at a more modest rate. This marks the second-slowest pace of withdrawals in eight weeks and a substantial moderation since a record $2.28 billion weekly outflow in mid-October.

"It looks like the market is trying to stabilize a little bit," said James Welch, a portfolio manager at Dreyfus Corp. "It's not positive, which is what we all want, but inevitably the value that exists in the tax-exempt market will be realized. ... There is unique and abundant value in our market and we think that will be recognized slowly, but it will be recognized."

Cash drained rapidly from municipal bond funds at the depths of the credit crisis in September and October. Amid a broad-based flight to safety, investors withdrew $4.5 billion from muni funds in the first three weeks of October.

For example, with markets in what Welch called a "dire panic," yields on 30-year triple-A rated municipal bonds swelled to 140% of 30-year U.S. Treasury rates on Oct. 16, according to Municipal Market Data. Yields are now down to 120% of Treasuries as of Thursday, which Welch said still undervalues munis but is moving in the right direction.

The report from AMG covers municipal bond funds that report weekly figures. Among all municipal bond funds - including funds that report monthly - clients have withdrawn an average of $1.01 billion a week in the past four weeks. That means outflows have slowed by a third from the four weeks ending Nov. 5, when clients withdrew $1.5 billion, AMG said.

"The muni market has stabilized somewhat, so some of the volatility that may have spooked some investors has come out of the market," said Evan Rourke, a portfolio manager at M.D. Sass. "It's been a more normalized environment, lacking some of the dramatic swings that we saw in early October."

Last week was the eighth consecutive week in which clients withdrew money from municipal bond funds, following 27 straight weeks of net inflows, according to the Arcata, Calif.-based fund tracker.

Taxable bond funds that report weekly suffered outflows of $1.5 billion for the week.

Equity funds reported inflows of $2.6 billion.

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