As investors continue their desperate search for yield, municipal bond funds hit their fifth consecutive month of inflows, racking up more than $100 million in January, according to Boston-based Cerulli Associates.
“Some of the yields currently available in the municipal space are competitive with what can be found in the taxable bond space, which is one reason for the consistent flows,” says Cerulli senior analyst Alec Papazian. “As money comes back to the market as a whole, a lot is going to fixed income, so muni bond funds would naturally benefit from that.”
Papazian notes the taxable bond space is still outdoing its tax-free counterpart, due to the fact the taxable space is so much larger, but the overreaction to default predictions in 2011 means a natural reverting to the mean in the muni sector.
“There were massive outflows last year,” he says. “Even though the last few months of 2011 saw inflows, the number was still negative overall for the year.”