Munis weaker in spots, outflows continue

By Jessica Lerner & Christine Albano, September 14, 2022

Municipals were weaker in spots Wednesday as mutual funds continued to see more outflows, while U.S. Treasuries and equities were mixed.

Uncertainty over supply-demand, interest rates and the economy are all giving investors of the municipal market some pause — highlighted by the ongoing outflow activity — but municipals are currently attractive and outperforming, according to municipal experts.

"Outflows are still dominating headlines, which probably means that yields on munis are close to peaking," said John Mousseau, president and CEO and director of fixed income at Cumberland Advisors.

"Deals are getting good reception, so that tells you that private accounts are picking up the slack from the funds," he noted.

Mousseau said monthly inflation numbers continue to be important because eventually they will go lower "and the market will sense a peak or plateau in the fed funds rate."

"The next assumption will be cutting and that will start the movement back into bond funds," Mousseau said. "It's a little counterintuitive since the short end of the curve is Fed-driven and the longer end is economy driven," he said, adding, retail investors react to those market signals.

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