WASHINGTON, Sept 19 U.S. municipal bond funds
reported $1.1 billion of net outflows in the week ended Sept.
18, compared with $1.9 billion in outflows in the previous week,
according to data released by Lipper on Thursday.
It was the smallest net outflow since Aug. 7, when investors
pulled $93.77 million from bond funds.
Still, it was the 17th week in a row of withdrawals, and the
four-week moving average remained negative at $1.5 billion, said
Lipper, a unit of Thomson Reuters.
Investors eyeing gains in equities and nervous about
Detroit's bankruptcy filing remain wary of tax-free debt and
have steadily pulled more money from municipal bonds than they
have invested since the week ended May 29. At the same time,
Puerto Rico's shaky economy is hurting municipal bond funds,
many of which buy the territory's debt that is free of federal
and state taxation.
So far in 2013, municipal bond funds have only seen net
weekly inflows in eleven weeks.
One of the major worries in the $3.7 trillion municipal bond
market this summer - that the Federal Reserve will soon end its
monetary stimulus program - eased somewhat this week after the
central bank signaled it would continue purchasing bonds this
Yields on municipal bonds began falling late Wednesday and
into Thursday, accompanying a price rise that could slow the
hemorrhaging in bond funds even further next week. On Municipal
Market Data's benchmark scale, yields on top-rated 10-year bonds
fell 6 basis points to 2.61 percent and on highly rated 30-year
bonds dropped 6 basis points to 4.23 percent on Thursday.
"The decision by the Fed to back away from its plans for
tapering should make fixed income more attractive and we could
see the recent rally extend to next week," said Daniel Berger,
analyst at Municipal Market Data, a Thomson Reuters company.
"Should this happen, fund outflows will abate and we should see
them lessen and possibly turn into inflows within the next few
Funds that hold high-yield municipal bonds, which usually
have lower credit ratings, posted $180.71 million of net inflows
during the latest week. Net outflows a week earlier totaled
$167.7 million, Lipper said.
However, investors in exchange-traded funds posted net
outflows for the week of $134.11 million, compared with the
$72.03 million investors withdrew on a net basis from funds in
the previous week. The funds saw the largest outflows since June
26, when investors withdrew $158.12 million.
Buying interest for individual bonds dropped for the second
week in a row, as well, according to data from BondDesk Group
LLC. Retail investors bought 2.3 municipal bonds for every one
they sold in the week ended Sept. 18, down from 2.4 during the
previous week. The number of bonds bought totaled 87,102, while
the number of bonds sold was 37,688.