| NEW YORK, Sept 29
NEW YORK, Sept 29 Yield-thirsty domestic and
foreign investors have poured money into U.S. municipal bond
funds for 52 weeks straight weeks, the second longest streak on
record and a trend that analysts said shows few signs of
Net inflows of fresh capital totaled $664 million for the
week ended Sept. 28, according to data from Lipper, a Thomson
Reuters unit. Investors have poured in a total of $48.5 billion
so far this year.
The strength of this run is closing in on the record 64-week
stretch of uninterrupted inflows that started in January 2009
and ended in March 2010.
"It's been a tremendous run, one I don't think I've ever
witnessed before," said Dan Heckman, senior fixed income
strategist at U.S. Bank Wealth Management.
Muni bonds have outperformed other fixed income securities
and retained value for domestic investors seeking a
tax-exemption. But they have also drawn crossover buyers and
foreign interest, Heckman and other portfolio managers said.
In the second quarter of 2016, foreign investors held their
highest level of U.S. muni bonds on record: $89.7 billion,
according to U.S. Federal Reserve data that is not adjusted for
Historically low and negative sovereign interest rates have
driven overseas investors to relatively higher yielding muni
debt, even if they cannot benefit from tax-exempt status.
Japanese investors have already placed money in muni bonds
and German banks are also interested, said Mark Paris, who
traveled to Japan in May as Invesco's head of municipal
Risks to the current environment, while small, include a
potential change in retail investor sentiment that the Fed could
switch gears and accelerate the pace and magnitude of interest
rate increases from its current lower-for-longer stance.
Investors could also be scared off by large and growing
unfunded public pension liabilities that consume ever bigger
portions of state and local budgets, analysts said.
Big headlines about defaults or other negative news could
also prompt a retreat as it did in the past with the Puerto Rico
debt crisis and Detroit's bankruptcy.
Even so, total demand has outpaced supply so much that even
this year's increased issuance levels have been quickly
Muni bond issuance is up 6.8 percent to $318.6 billion so
far this year as of Thursday over the same period last year,
according to Thomson Reuters data.
"We might see 70 weeks of inflows," said Invesco's Paris.
"It tells me I'm going to have a very positive trend of being
able to have money to invest for quite some time."
(Reporting by Hilary Russ; Editing by Daniel Bases)