The dam broke for investors in municipal bond mutual funds.
The muni market, reeling from one of the worst selloffs in 25 years in the past week, witnessed record-breaking outflows from muni bond funds. Weekly reporting funds recorded outflows of $4.53 billion for the week of June 26, Lipper FMI numbers showed.
They represent the largest weekly outflows for munis since Lipper started tracking them in 1992. The market reached its previous record, at $4 billion, on the week of Jan. 19, 2011, during the selloff triggered when banking analyst Meredith Whitney predicted a wave of defaults.
It was the fifth straight week of outflows, and the fourth consecutive week to exceed $1 billion. Last week, $2.22 billion flowed from weekly reporting funds, then a record for 2013.
The market had begun to see triple-A yields rise in May, a move that gained momentum this month. After Federal Reserve chairman Ben Bernanke indicated on June 19 that the Fed may begin tapering off its bond purchasing program this year, yields turned on the afterburners.
The 10-year triple-A yield jumped 53 basis points from June 19 to June 25 alone. The 30-year yield leapt 55 basis points over the same period, Municipal Market Data numbers show.
While some crossover buyers appreciated what yield liftoff meant for prices, demand plunged markedly for mutual fund investors.
Assets for all muni funds that report their flows weekly fell for the fifth straight week, plunging $12 billion to $303 billion. The previous week they reported $315 billion.
The value of the holdings for weekly reporting funds plummeted $7.20 billion. The week before, they had tumbled $1.20 billion.
The four-week moving average for all municipal bond mutual funds that report their flows weekly was $2.46 billion of outflows, compared to $1.36 billion of outflows the week before.
Long-term bond funds that report their flows weekly had heavy outflows. As with all funds, it's the fourth straight week of outflows of more than $1 billion.
The flight continued for a 17th straight week, increasing to $2.79 billion. Long-term bond funds reported $1.74 billion of outflows the previous week.
The struggle continued for high-yield muni funds as well.
Those high-yield funds that report flows weekly recorded almost $1.20 billion in outflows, according to Lipper. The previous week, they reported $850 million in outflows.
Assets for high-yield funds that report their flows weekly fell to $39.14 billion, from the $42.40 billion reported the week before.
The value of the holdings for high-yield funds dropped by $1.72 billion. Last week, they fell by $327 million.
The four-week moving average for all high-yield municipal bond funds that report their flows weekly showed $802 million of outflows, from $544 million of outflows the week before.