Investors continue to pour cash into Muni Bonds, as $1.2 billion was added to municipal bond funds last week. That was the 32nd straight week of positive cash flows, and the largest so far this year. Year to date, the net cash flow into muni bond funds has been $22.1 billion. The trends of positive cash flows and restrained issuance levels continue to push muni prices higher and yields lower. Last Thursday, the yield on the 30-year muni fell to a record low 2.44%.
While munis have benefitted from U.S. investors moving cash out of other domestic asset classes such as equities, there has also been an increase in demand for munis from foreign investors. According to the Federal Reserve, the amount of munis held by foreign investors grew by over 6% in 2015 to $85 billion, which is nearly triple the amount held a decade ago. We expect that number to grow in 2016 due to the global low interest rate environment. While those not subject to U.S. personal income taxation do not reap the tax benefit of munis, foreign investors are now looking to munis as a relatively stable alternative to the negative interest rates now becoming more prevalent in other parts of the world.
Sources: Financial Times, Reuters