Go Long: 89% of flows going to short term and intermediate MuniBond Funds

                              Supply and Demand Dynamic in MuniLand:

For new investors, this increase in municipal bond issuance could mean several things. Higher supply might lead to more investment opportunities, particularly in tax-exempt bonds, which are attractive for those in higher tax brackets due to their tax advantages.

However, the influx of new bonds could also put downward pressure on prices, potentially raising yields as issuers compete for buyers. This could benefit new investors seeking income but might also introduce volatility, especially if demand doesn’t keep pace with supply.

                           Demand measured by net capital flows into MuniBond Mutual Fund and ETFs.

            The recent data shows mutual funds have seen inflows of $426 million, bringing their year-to-date (YTD) inflows to $5.256 billion. MuniBond ETFs recorded $98 million in inflows, pushing their YTD net flows to $10.693 billion, with assets under management (AUM) across 129 MuniBond ETFs now totaling $147.6 billion.

             Remember back in 2021 when the 10-year Treasury was below 1%, inflows to MuniBond Mutual Funds averaged $2 billion per week. Demand is currently somewhat tepid.

The municipal yield curve is growing steeper (refer to Display 1), reflecting higher demand for bonds with maturities of 10 years or less compared to longer terms. Indeed, 89% of year-to-date inflows into mutual funds and exchange-traded funds have focused on the intermediate and short segments of the yield curve.

This demand concentration in the middle and shorter ranges is causing the long end to build up stored value. While pinpointing the timing is tricky, this accumulated value is likely to be released eventually, potentially triggering a rally in long-term bonds that could outpace shorter maturities.