Municipal bond mutual funds reported inflows for a third consecutive week, as they took in $338 million in the week ended Jan. 29, Lipper FMI reported on Thursday.
It was a significant boost from the prior week when those funds reported $86 million of inflows after adding $103 million in the week ended Jan. 15, the first inflow in 34 weeks.
Inflows also extended to weekly reporting high-yield muni bond funds as they reported $292.8 million of new assets, following inflows of $154.9 million in the previous week.
"From a seasonal basis, the stars are aligning for more municipal inflows," Jeff Tjornehoj, Lipper senior research analyst told The Bond Buyer Thursday, as the arrival of new cash is tied to the IRS's Wash Sale rule.
The rule prohibits an investor from claiming a capital loss for tax purposes if the investment in which the loss originated is repurchased within 30 days - hence the timing of the recent inflows, he said.
"We have seen interest rates move down as Treasuries have gone lower, so it's a confidence-building move for municipal bond fund investors," Tjornehoj said, adding that the uptick in price makes municipals more attractive.
"There's just a re-appreciation for municipal debt right now," he said. "It's a good time to think about municipals and there is also a good case for high-yield municipals compared to corporates and Treasuries."
That said, however, long-term municipal bond funds didn't fare as well this week, reporting losses of $55.1 million. The outflows come on the heels of $6.6 million of inflows among long-term municipal bond funds in the prior week.
The inflow figures do not include flows for municipal bond exchange-traded funds, according to Lipper.
