“March has seen a fairly brisk Exodus from municipal bonds in what could be the first signs that investors are beginning to worry about fixed income.
The popular government finance instruments have seen fund outflows of more than $500 million—just a fraction of the $608 billion asset class but a move that caught some bond pros by surprise. The most recent week saw $261 million come out of the market, according to Thomson Reuters.
While munis often see investors take profits in the springtime as they raise cash to pay taxes, the selling this year came a bit sooner than usual and appeared at least in part unrelated to the normal ebb and flow of fixed income trading.
“Some observers have attributed the sharp outflows over the past few weeks to seasonal patterns … but we disagree,” George Friedlander, Citigroup’s chief municipal strategist, said in a note to clients. “There is a real risk the negative pull of seasonality is yet to be felt.”
If the trend continues for munis, it could provide the first signal that the much-anticipated “Great Rotation” of money from bonds into equities has begun. Stock market bulls cite the prospects for the paradigm shift in investor behavior for their belief the equity market will keep rising….”
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