UPDATE 2-US municipal bond funds report $866 mln weekly inflows

Thu Nov 8, 2012 5:50pm EST

NEW YORK, Nov 8 - U.S. municipal bond funds reported $866 million of net inflows in the week to Nov. 7, after $123 million of outflows in the previous week, according to data released by Lipper on Thursday.

Municipal bond funds, popular with retail investors, have attracted positive weekly inflows for nearly a year barring two periods - the week ended April 11 and last week.

"Muni funds are roaring back", said Daniel Berger senior analyst at MMD, a unit of Thomson Reuters. Berger noted that the re-election of President Barack Obama suggested that "taxes will increase, boosting demand for tax-exempt assets."

Superstorm Sandy, which hit the East Coast with a dampening impact on the market activity, has been considered as a major factor behind last week's drop.

"While the run-up to the presidential election did add an element of uncertainty to the municipal market, we think the explanation for last week's outflows is fairly straightforward and relates to the dropoff in inflows resulting from Hurricane Sandy," Chris Mauro, director of Municipal Research at RBC Capital Markets, said in a note published on Thursday.

The four-week moving average for the muni funds remained positive at $507 million, said Lipper, a unit of Thomson Reuters.

High-yield funds had inflows for $180 million from outflows totaling $86.2 million in the previous week.

Flows into exchange-traded municipal bond funds were positive for $19 million from inflows of $39 million the previous week.

"This was the number everybody was looking for," in the $3.7 trillion municipal bond market, said John Dillon, chief municipal strategist at Morgan Stanley Wealth Management.

"It removes a lot of uncertainty now. Even if you look at the hurricane from a credit standpoint, the impact will not be as hard as the human toll has been," he added.

A falling trend in bond yields is also seen supporting prices. Both the 10-year and the 30-year yields fell to fresh all-time record lows on Thursday, with the first at 1.59 percent and the latter at 2.69 percent on Municipal Market data's benchmark.

BondDesk Group data for the week ended Nov. 7 showed retail investors bought 1.9 bonds for each one they sold, unchanged from the previous week. The total number of bonds bought was 53,048 while the number of bonds sold was 27,343.

The data is based on odd-lot customer transactions.

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