Magazine article American Banker

Investors Yank Cash out of Municipal Bond Funds

Magazine article American Banker

Investors Yank Cash out of Municipal Bond Funds

Article excerpt

Byline: Dan Seymour

Investors pulled cash out of municipal bond mutual funds last week for just the third time in a year and a half, despite a strong week for state and local government debt.

Municipal funds that report their figures weekly posted a net outflow of $232.3 million during the week that ended June 30, according to Lipper FMI.

While the river of cash flooding municipal funds has markedly slowed this year, outflows remain rare. Investors had withdrawn money from municipal funds only twice before in 2010, on March 31 and April 14. Flows were positive every week in 2009 in the wake of a stream of outflows in late 2008.

All funds, including those that report their figures monthly, have been reporting inflows at a rate of $379 million a week for the past four weeks, based on the four-week moving average. The last time the four-week average was negative was January 2009.

Last week's outflow is not easily explained, said George Strickland, who co-manages six municipal funds with more than $4 billion of assets for Thornburg Investment Management.

Munis had a solid week. Municipal bonds delivered a return of 0.5% for the week, according to the Standard &Poor's National AMT-Free index, and the yield on the 10-year triple-A muni based on the Municipal Market Data scale sank 15 basis points.

Muni funds reported $1.31 billion in market gains during the week, propelling assets to a record $498.7 billion.

While retail demand had tailed off, Strickland said it has actually picked up again recently in spite of the low yields on municipal bonds. …

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