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NEW YORK, Sept 29 (Reuters) - 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 abating.
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 inflation.
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 portfolio management.
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 absorbed.
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)