Monday, August 31, 2009

The Debts of the Spenders: Muni Bonds Continue Investor Inflows

Billions of dollars continue to flow into municipal bond funds. $1.5 billion flowed for the week ending August.

The article does not mention WHY investors continue to pour money into munis. However, I would venture a guess that a main consideration would be wealthy individuals (the bulk of muni investors have historically been the wealthy eager to shelter their income from high taxes) motivated by concerns of higher federal and local taxes. Most states exclude the gains from muni bonds for their residents while simultaneously penalizing the tax treatment of investment funds in other states.

It is even possible that these investors do not trust the action in equities - especially as the historically bearish fall months of September - November approach. (December could be a different story as that is the month when fund managers try to front run the January effect, a period of extended holidays and low volume that give rise to accumulation).
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