Low Municipal Bond Yields Lead to Mixed News
Are low municipal bond yields starting to drive investors away from the market? Domestically, the latest municipal bond news shows that fund inflows have faltered in September, if their reportings in recent weeks are to be believed. Although the municipal bond market has respectably remained strong in the midst of the ongoing American economic crisis, demand for muni bonds have seemingly stumbled a bit since early August.
Muni funds are reporting an average of $1.02 billion in new money, which is hardly a figure to sneeze at and one that still compares favorably with historical trends; however, the declining municipal bond yields and Harrisburg, Pennsylvania's default may have effectively spooked investors who were already rattled by the unkind words Warren Buffet had to say about the market's future, all leading up to reported losses of $258.6 million in the week ending on September 15.
A Sign of Bad Municipal Bond News to Come?
Moreover, while the stock market has remained a harsh and uncertain investing environment for some time, some are predicting a rally, which could translate to an even more sizeable slump for municipal bond yields. It is worth noting that stock dividends are currently outpacing their muni bond counterparts, and real estate yields happen to be on the rise (unlike municipal bond yields) meaning more investors may migrate over to these investment instruments.
Still, many would still encourage investors not to abandon municipal bonds, which currently remain the preferred choice among retail and individual investors who seek predictable income free from taxation. Wise investors continually seek out safer avenues for income, and municipal securities have been historically synonymous with safety.
Foreign Investors Eye U.S. Muni Bond Yields
In contrast to the recent municipal bond news that demand for American muni bonds has slowed down state-side, the last several months have seen a noticeable increase from the influx of $71.9 billion in overseas muni bond borrowing -- a figure from the second quarter of this year.
Build America Bonds have been widely popular state-side and have also attracted much attention overseas -- for although we perceive muni bond yields to be alarmingly low, American instruments are still a draw for foreign investors, because the yields they carry are still higher relative to overseas offerings. It is uncertain as to whether the municipal bond market crash will happen anytime soon, but despite the recent municipal bond news, the market appears to harbor plenty of opportunities for investors across the globe.