What Bond Fund Flows Tell us About Municipal BondsNovember 27th, 2012 by David Waring
I was researching bond mutual fund flows earlier this week, and I came across a nice time series from the Investment Company Institute. It breaks out monthly municipal bond fund flows going back to 2007.
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What is mutual fund flow data? Flow data tracks the net money money coming into or out of an individual fund or group of funds over a period of time. Simply put, its deposits minus withdrawals. Many investors believe that fund flow information can be used as a forward looking indicator of future price movements. For example, if a particular type of fund is getting more deposits each month, that might be a sign that prices will be rising.
Municipal Bond Fund Flows and The Meredith Whitney Effect
We will be adding the below chart to the bond market data section here at Learn Bonds, however there is one thing that I also wanted to comment on here as well. It is widely known that Meredith Whitney scared many municipal bond investors out of the market with her 2010 prediction of $100’s of Billions of dollars in municipal bond defaults that never came true. When looking at municipal bond flows on the below graph however, its still striking to me just how much of an effect she had. The fact is that one person had more of an effect on municipal bond fund outflows than the entire 2008 financial crisis.
Municipal Bond Fund Flows and The Warren Buffett Non-Effect
Another thing I think is interesting, is the lack of jitters so to speak that the market has shown since the blown Whitney call. Earlier this year both Warren Buffett and the NY Fed came out with news that while not as dire as the Whitney prediction could have certainly spooked the market. By the looks of this graph at least, it seems that municipal bond investors are once bitten twice shy.
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