What Taxes? Muni Investors Continue to Add to Funds Despite April 15th’s Arrival

Muni bond investors have bucked a trend this tax season by continuing to invest during the time of the year when they are typically pulling cash out of funds to pay taxes. Historically, the performance of munis in March and early April is thwarted by negative outflows from muni bond funds. The Lipper US Fund Flows reported that net cash into muni bond funds was over $550 million last week, which is not only a positive number for a week that included the dreaded April 15 Tax Day, but the highest in the past four weeks. The positive cash flow last week also marked the longest streak of weekly positive cash flows since 2010. Muni bond funds have now added assets for 29 straight weeks. The positive cash flows have also helped the performance of muni bonds. After positive gains in January and February provided a good start to the year, munis rose again in March, up 0.3% according to Bank of America Merrill Lynch. So far in April, muni performance is well ahead of taxable bonds with similar ratings and maturities. Attractive relative yields, restrained levels of issuance and lower volatility than other asset classes have all contributed to the gains. Should we see a continuation of the strong demand for munis, along with limited supply, the market could be in for a continuation of the strong performance in the months ahead. 

Sources:  Bank of America Merrill Lynch, Barclays, Bloomberg News, Lipper, Morgan Stanley