The municipal-bond exchange-traded fund took in a record $1.8 billion for the week ended May 25, quadruple its weekly average for 2022, according to data from Refinitiv Lipper. Investors in municipal-bond mutual funds continued to run short of cash, but outflows fell to their lowest level since March.
Prices climbed as buyers returned, with a return of 2.9% from May 18 to Thursday, according to data from the Bloomberg index. NuVine LLC, one of the largest managers of municipal bonds, said this week it plans to reopen its National and California high-yield funds, which closed last summer to new investors because prices The sky was touching.
Municipal bonds have delivered a minus 7.99% return Thursday this year, slightly ahead of other fixed-income investments, according to data from the Bloomberg Index. The Bloomberg US Aggregate Bond Index — largely US Treasuries, highly rated corporate bonds and mortgage-backed securities — has delivered a minus 8.52% return as of Thursday this year.
“I think things are changing. I don’t think it’s a blip,” Municipal Market Analytics Partner Matt Fabian said of the rally. “I think the munitions got too cheap.”
One contributing factor to the rise of municipal bonds: They are in high demand in early summer, when outstanding municipal debt is paid off and investors need new sources of tax-free income. High-net-worth investors support the nearly $4 trillion market for state and local government bonds because the interest they throw away is typically exempt from federal and often state taxes.
Muni prices have been falling sharply throughout the year as yields rise in response to the Federal Reserve’s efforts to rein in inflation. The prospect of an influx of new, high-yield loans into the market caused outstanding low-yield loans to lose appeal to investors. Bond prices fall as yields rise.
According to Refinitiv Lipper, downward pressure on muni prices has come from steady mutual-fund outflows, which have totaled more than $40 billion so far this year. According to Fed data, mutual funds control about $1 trillion in outstanding municipal bonds. When those investors pull their money together, fund managers must come up with cash quickly.
Record flows into exchange-traded funds, which, unlike mutual funds, can be bought and sold at any time of day, likely reflect buying by younger or more nimble investors, Mr. Fabian said. He said some of the cash could also come from mutual fund managers, who are temporarily parking investors’ money while they look to buy bonds.
Many shy away from announcing the end of 2022 bonds. Economic turmoil, volatile bond rates, or issuing more bonds than expected could drive prices down, Mikhail Fox, head of municipal strategy at Barclays plc, wrote in a research report Friday. “The market isn’t out of the woods yet.”
But municipal debt remains strong, with states, cities and school districts flush with tax revenue from Covid-19 recovery and federal aid from the pandemic rescue package. This creates an incentive for investors to return to the market as prices fall, and they have it faster.
An early entrant was New York State resident Jonathan Kahn, who said he had purchased his first muni bond in two years on April 6. Before buying bonds, Mr. Kahn said, he typically checks public trading data posted by the Municipal Securities Rulemaking Board, a self-regulatory organization, to see how much a dealer has paid for a security in the past. had paid. Unlike the stock market, there is no publicly searchable daily price information for municipal bonds, and many trade frequently. According to Municipal Market Analytics, loans are issued by around 35,000 different borrowers ranging from states to sewer districts and rural hospitals.
Mr Kahn said the last time he got a deal before April was in March 2020, when the onset of the Covid-19 pandemic created panic in the market and crippled Muni prices. In the past two months, Mr. Kan said he made 15 purchases at Muni Bazaar.
“It is an open question as to how long yields will continue to rise and prices remain attractive,” he said.
This story has been published without modification to the text from a wire agency feed