Investors are pouring money back into municipal bonds as higher yields and the approaching summer reinvestment season draw cash into the tax-exempt market.
Municipal-bond funds attracted about $2.3 billion in the week ended May 27, nearly double the prior week’s tally and the second-largest weekly inflow since 1992, according to a JPMorgan report published Thursday by strategists led by Peter DeGroot.
Year-to-date inflows have climbed to $39.8 billion, the second-highest level on record for same the period, according to JPMorgan.
Investors and analysts say a combination of market conditions and seasonal factors has encouraged buyers to return to the market.
“The combination of higher yields, strong credit quality and signs of potentially positive movements globally, investors have felt more comfortable putting more money into the market this week,” said Dan Solender, director of tax-free fixed income at Lord Abbett & Co.
Investors are also moving cash into the market ahead of the summer reinvestment season, according to Lyle Fitterer, senior portfolio manager at Baird Advisors.
“There’s lots of reinvestment dollars to put to work in June and July and I think investors may be trying to get out ahead of that,” he said.
The demand has helped absorb a heavy new-issue calendar, with strong interest for both investment-grade and high-yield municipal bonds, Fitterer said.
Municipal-bond exchange-traded funds accounted for much of the latest inflows, drawing about $1.7 billion of the week’s $2.3 billion total, according to JPMorgan. The products have steadily gained market share since their introduction in 2007 and now account for about 4% of the municipal market, up from roughly 1% in 2019, according to Bloomberg Intelligence analyst Matthew Gastall.
“ETF flows can be more driven by investors following the momentum in the market, so as the muni market keeps moving in a positive direction they get more of the quicker flows from investors trying to get into the market fast,” Solender said.
JPMorgan strategists said total inflows for May could exceed $10 billion.
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