WASHINGTON, Sept 5 Outflows from U.S. municipal
bond funds continued to shrink, dropping to $1.31 billion in the
week ended Sept. 4 from net outflows of $1.74 billion the week
before, according to Lipper data released on Thursday.
However, it still marked the 15th consecutive week of net
outflows, which kept the four-week moving average negative at
$1.6 billion, said Lipper, a unit of Thomson Reuters.
High-yield funds saw outflows of $265.61 million and
exchange-traded funds registered outflows of $60.88 million.
Fears of interest rate hikes and nervousness about credit
risk have led to a mass exodus from municipal bond funds, with
outflows reaching a record high of $4.53 billion at the end of
June. So far in 2013, there have only been 11 weeks of inflows
Detroit, which filed for the largest U.S. municipal
bankruptcy in July, has added to investors' concerns.
Puerto Rico's shaky credit quality is also weighing on
municipal bond funds. Interest paid the territory's debt is
exempt from states' taxes, which has made it attractive to
individual investors and funds beyond its borders.
Bonds issued by Puerto Rico account for 13 percent of the
John Hancock Massachusetts Tax-Free Income fund, for example,
and those funds that bet heavily on high-yielding debt from the
U.S. commonwealth are now struggling.
"Puerto Rico continues to lead all states and territories
downward," S&P Dow Jones Indices said in a special commentary on
Thursday. "Uncertainty about when and if the needed economic
turnaround will come has put selling pressure on bonds in the
The S&P National AMT-Free Municipal Bond Index that tracks
investment-grade debt recorded a -1.71 percent return for
August, it added.
The interest rate rise also shows no signs of abating.
On Thursday, yields for top-rated 10-year bonds rose 2 basis
points on Municipal Market Data's benchmark scale to 3.04
percent, the highest since April 2011. Those for highly-rated
30-years also were up two basis points, to 4.51 percent, the
highest since May 2011, according to MMD, a Thomson Reuters
Since the first trading day of the year, yields on top-shelf
10-years have risen 126 basis points and those on 30-years have
are up 165 basis points. Yields move inversely to price.
Nonetheless, interest in purchasing individual bonds remains
In the week ended Sept. 4, customers bought 2.7 bonds for
every one they sold, up from 2.5 the previous week, although the
number of trades was low.
The total number of bonds bought was 69,027, compared to the
previous week's 94,889, and the total sales was 25,629, compared
to 38,465 the week before, according to BondDesk Group LLC.