UPDATE 1-US Muni funds see $274 mln weekly inflows-Lipper

Thu Jun 9, 2011 5:23pm EDT

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By Chip Barnett

NEW YORK, June 9 (Reuters) - For the first time in over six months, investors turned bullish on U.S. municipal bond funds and poured millions of dollars back into them, according to Lipper data issued on Thursday.

Muni bond funds saw more than $274 million of net inflows in the week ended June 8, breaking 29 straight weeks of redemptions, Lipper reported. The last time muni funds had posted an inflow was in the week ended Nov. 10, 2010.

"While this is only a single data point in a volatile series, it speaks to the realization among fund investors that while the state and local government sector continues to face considerable long-term fiscal headwinds, the sky is not falling in the municipal bond market," said Robert Nelson, managing analyst at Municipal Market Data, which is part of Thomson Reuters. "Defaults remain low and confined to known higher-risk sectors, and the ability to service outstanding debt for the vast majority of issuers is still strong."

In the week ending June 1, muni funds had outflows of more than $436 million, said Lipper, which is a Thomson Reuters service.

The four-week moving average, however, continued to remain negative, remaining about $141 million in the red after a decline of around $234 million in the previous week.

Muni funds have been popular with individual investors in the $2.9 trillion municipal bond market. But many retail investors late last year became skittish about shaky state and local government finances and forecasts of a coming tidal wave of municipal bond defaults.

Also in the week ended June 8, Lipper said that municipal Exchange Traded Funds (ETFs) pulled in about $28 million of cash, the fifth straight week of ETF inflows.

High-yield muni funds reported an inflow of $80.6 million after seeing an outflow of $43.5 million in the previous week, according to Lipper.

Chris Mier, muni market strategist at Loop Capital Markets in Chicago, said fund investors may have been wooed by to the market after headlines predicting doom and gloom for munis eased and other investors came back.

"We know high-net-worth (investors) have been buying bonds directly for some time now," he said.

On Wednesday, the Investment Company Institute said that muni funds continued to stay in the green, pulling in $20 million in the week ended June 1, the fourth week in a row the funds saw a cash infusion.

But from mid-November through mid-May, muni funds had net outflows of $45 billion; in the January to April period outflows totaled $23 billion, ICI reported.

Meanwhile, tax-free money market assets rose $2.98 billion to $309.55 billion in the week ended June 7, according to the Money Fund Report, published by iMoneyNet on Wednesday.

(Reporting by Chip Barnett; additional reporting by Jim Christie, Daniel Bases, Ryan Vlastelica and Karen Pierog; Editing by Diane Craft)

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