March 19, 2020 / 10:28 PM / 13 days ago

Investor exodus roils U.S. municipal bond market

CHICAGO, March 19 (Reuters) - Yields in the U.S. municipal bond market, where states, cities, schools and other issuers sell debt, skyrocketed on Thursday amid a selling frenzy by virus-rattled investors who pulled a record amount of money out of muni funds in a race for cash.

The $3.8 trillion muni market has experienced big yield swings as the coronavirus has spread through the nation affecting businesses, governments and everyday life.

Lipper reported net outflows from muni bond funds of an astounding $12.2 billion in the week ended March 18, the largest weekly muni flows in data going back to 1992. That followed $1.76 billion of outflows in the previous week. Net weekly flows had been positive from early January 2019 through late March 2020.

Municipal Market Data (MMD) raised yields on its benchmark triple-A, tax-exempt scale by 50 basis points across the curve, citing liquidations of muni holdings by funds to shore up cash needs. The yield on 10-year bonds jumped to 2.34%.

“It’s a very unnerving environment,” said Christopher Mier, managing director of analytical services at Loop Capital Markets in Chicago.

He said munis through all of last year were viewed as a safe haven for certain investors, who have now fled to money market funds.

Those funds attracted a record $148 billion in the latest week, according to Lipper.

Meanwhile, issuance in the muni market is down considerably due to volatile market conditions, MMD said. (Reporting By Karen Pierog; Editing by Alden Bentley and Cynthia Osterman)

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