Cash is streaming into municipal bond funds, indicating that investors are re-gaining some of their former appetite for risk.
AMG Data Services president Robert Adler says investors are entrusting about $1.73 billion per week to muni funds, based on a four-week moving average.
"There's a risk aversion that appears to be leaving the market in some of the riskier sectors," Adler told Bond Buyer.
“I think you can infer it’s a sustainable trend,” Adler says.
“Flows tend to follow performance, so it’s not surprising that the weekly inflows and the rate of flows are climbing, because investors become more encouraged as these trends continue.”
The 1728 mutual fund classes devoted to state and municipal bonds saw major cash drains during last fall’s financial crisis, with investors removing $9.42 billion from muni funds.
Market losses took an additional $42.26 billion from the sector.
The combination of outflows and market losses caused a drop in municipal bond assets from $398 billion last September to less than $337 billion in December.
Municipal bonds have returned almost twice as much as corporate debt so far this year because of lower issuance of tax-exempt debt and less volatility in all bond markets, according to a report from Bank of America-Merrill Lynch.
Municipal bonds of all maturities and ratings have returned almost 8.6 percent so far in 2009.
Corporate debt has returned about 4.5 percent this year, while government debt has lost 2.2 percent.
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