Investors withdrew $1.8 billion from municipal bond funds in the week ended Wednesday, the biggest weekly outflow since April 2025 and the first interruption to a 21-week streak of inflows. The exodus, led by open-end funds with exchange-traded funds also posting redemptions, puts the market on track for a third consecutive month of negative returns.
Returns erase year-to-date gains
A Bloomberg gauge of US municipal debt shows year-to-date performance down roughly 1.7 percent, a reversal that has unsettled buyers accustomed to the price stability that typically defines the asset class. The selloff coincides with rising Treasury yields, persistent inflation concerns and a heavy calendar of new issuance that has flooded the market with supply.
Valuations reach one-year cheapness
Ten-year municipal benchmark debt yielded about 74 percent of comparable Treasuries as of Wednesday, hovering near the cheapest level relative to government bonds in a year. Jeffery Timlin, lead portfolio manager for Sage Advisory Services’ municipal strategies, said the ratio makes this “probably as good of a time as any to buy in the last 10 to 20 years” for yield-focused investors. He noted that historically, periods of above-average negative returns accompanied by outflows have proved to be favorable entry points.
Selling pressure signals more pain ahead
The volume of bonds submitted for bids surged to about $2.5 billion, matching the April 2025 peak and confirming that investors were rushing to liquidate before the fund-flow data captured the trend. James Pruskowski, managing director at Hennion and Walsh, said the bids-wanted lists had been “getting hit hard recently so you had a sense money was moving and outflows could be next.” He warned that outflow cycles are rarely one-and-done and that challenging months likely lie ahead.