Muni debt mutual fund investors have been living it up this year as their funds have been on a tear, gaining 8.3% on average. But despite one of the group’s best years of performance, 2014’s net inflows are not likely to impress anyone; just $21.3 billion returned to the funds after $63.5 billion disappeared during 2013. Part of the reason flows haven’t been as strong as performance might indicate is the absolute level of yields, which is now below 3.7% on the Bond Buyer GO Index.
This past week’s net inflows came in at $519 million, almost double the year’s weekly average, and suggest investors aren’t ready to change course. If recent history is any guide, yields have a bit more room to run (they touched 3.3% in November 2012), but with global economies slowing and increasing attention being given to U.S. assets, that point might be reached in 2015 sooner than we think.