Net Inflows for Municipal Bond Funds are on a Record Pace

Municipal bond funds (including both mutual funds and ETFs) took in $1.2 billion of net new money for the fund-flows week ended Wednesday, October 30. This marked the asset group’s forty-third consecutive weekly net inflow, during which time they’ve grown their coffers by slightly more than $53.0 billion. This is the group’s fourth longest net inflow streak ever (Lipper began tracking this data in 1992) for the second highest total net intake, but it is the best of the four streaks by average net inflows per week (+$1.2 billion). The longest streak (64 weeks) with the largest total net inflows (+$53.7 billion) ran from January 7, 2009, to March 24, 2010. At its current rate, the muni bond fund group (+$74.7 billion for the year to date) is on pace to post its highest annual net inflows ever, beating the $81.1 net positive flow in 2009.

Muni bond funds have benefitted from several factors during 2019, including the Federal Reserve cutting interest rates three times this year and a change in the tax laws. The new tax law caps the deduction for state and local taxes at $10,000. This upper bound has pushed investors towards muni bond funds in search of tax-exempt interest income to offset their higher federal taxes. The Fed coming off 2018 (during which interest rates were raised four times) reversed course early in 2019 and announced its third interest rate cut of the year at its October Federal Open Market Committee meeting earlier this week. These rate reductions have been to the advantage of all fixed income funds including muni debt funds.

Net inflows for the asset group have been dominated by funds in the national municipal debt funds peer groups this year as they have accounted for total net positive flows of $63.3 billion. The General Municipal Debt Funds (GM), Intermediate Muni Debt Funds (IMD), and High Yield Muni Debt Funds (HM) peer groups have taken in $23.8 billion, $18.8 billion, and $16.6 billion of net new money, respectively. The largest individual net inflows within these groups belong to Vanguard Intermediate-Term Tax-Exempt Fund (+$8.1 billion) and Goldman Sachs Dynamic Municipal Income Fund (+$3.3 billion), which are both in the IMD classification. The highest positive net flows in the HM and GM peer groups are attributable to Nuveen High Yield Municipal Bond Fund (+$3.2 billion) and BlackRock Strategic Municipal Opportunities Fund (+$2.4 billion).