- The Wall Street Journal – Hedge Funds Prop Up Muni Market—for Now
The good news for the municipal-bond market in recent weeks is that some of the world’s biggest hedge funds have been buying billions of dollars in munis. That may also be the bad news…Some high-net-worth investors and mutual funds have been heavy muni sellers. Investors have yanked roughly $25.8 billion out of muni mutual funds for 14 consecutive weeks, according to Lipper FMI. Enter hedge funds and other nontraditional muni investors, such as insurance companies and pension funds. Purchases by big hedge funds and those other buyers have recently helped stabilize muni-bond prices. “Near term,” said John Flahive, director of fixed income for BNY Wealth Management, buying by hedge funds is “a positive thing, but you have to be careful, because eventually they will be sellers. They don’t want to sit around and clip coupons. They are interested in relative return.”
Comment
The latest ICI data shows outflows of $1.45 billion from muni bond funds in the week ending February 16, marking the 15th consecutive weekly outflow.
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The highlighted quote at the bottom of the above story also highlights a theme that is being drowned out by all the negative press surrounding munis.
The chart below shows that munis have outperformed Treasuries since the beginning of the year. The white line shows the muni ETF known as the iShares S&P National AMT-Free Muni Bond Fund (MUB). The red line shows the long-term Treasury ETF known as the iShares Barclays 20+ year Treasury Bond Fund (TLT).
