WASHINGTON (Reuters) - U.S. municipal bond funds reported $688.5 million of net inflows in the week ended Jan. 14, about half the $1.3 billion in inflows the previous week, according to data released by Lipper on Thursday.
Last week’s flood of investor dollars marked the largest net inflows since January 2013, and the steep drop could indicate investors’ disappointment with municipal bonds’ declining yields.
On Municipal Market Data’s benchmark scale, yields top-shelf 10-year bonds ended the trading day at 1.75 percent, the lowest since May 2013. Yields on 30-years were the lowest since December 2012, at 2.52 percent, according to Municipal Market Data, a unit of Thomson Reuters.
“People seem to be trying to reach for some degree of yield by putting money into long-duration funds,” said Chris Mauro, director of municipal bond research at RBC Capital Markets. “The only sub-sector that was down on the bond side was the short-term.”
Nonetheless, the four-week moving average for municipal bond funds remained positive at $669 million, said Lipper, a unit of Thomson Reuters.
Long-term municipal bond funds reported $588.8 million net inflows and intermediate funds $237 million of inflows. High-yield muni bond funds reported inflows of $259.1 million, down from $336.2 million in the previous week.
Mauro noted that tax-exempt money market funds, where investors often deposit their year-end coupon and principal payments until they can re-invest in municipal securities, saw outflows of around $2.25 billion this week. Some of that money could move into municipal bond funds next week, he said, adding that investors may also have chosen to invest in other fixed-income products this week.
“It’s hard to say whether munis lost some assets to the taxable side, but certainly we didn’t get the follow- through we would hope for,” he said.
Declining yields have drawn issuers back to the market and spurred a resurgence of refunding in recent months.
But the fall is also sending investors scrambling. Buyers are now looking to lower-rated, riskier debt that typically pays higher yields, causing “the difference between yields on lower-quality bonds and high-quality bonds to narrow,” Dorian Jamison, municipal analyst at Wells Fargo Advisors, wrote in a recent note.
Reporting by Lisa Lambert; Editing by Leslie Adler