Roughly $1.8 billion left municipal bond funds/) in the week through Wednesday, according to a Thursday note from JPMorgan. That marks the largest weekly pullback since April 2025 and brings an end to a 21-week streak of net inflows.
JPMorgan's strategists said traditional open-end funds accounted for most of the exit, with muni ETFs also seeing redemptions. Selling picked up in bids-wanted lists too, with about $2.5 billion of bonds out for bid - the most since April 2025, based on a Bloomberg measure.
Concerns about inflation, higher Treasury rates, and a wave of new municipal issuance have been pressuring prices. The choppiest month of the quarter has dragged year-to-date returns down about 1.7%, Bloomberg's muni index shows, and Bloomberg data on monthly performance for state and local debt reflect that slide.
By midweek, benchmark 10-year munis were offering about 74% of the yield on comparable Treasuries, according to Bloomberg, leaving tax-exempt bonds near their cheapest levels versus Treasuries in a year.
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Jeffery Timlin, who leads municipal strategies as lead portfolio manager at Sage Advisory Services, said multiple bouts of negative returns tend to rattle investors who expect munis to be steady. "When that price stability erodes, you start to see people liquidating their municipal bonds whether that's funds or SMA accounts," he said. "In fearful markets, they tend to move out of that asset class that is becoming weaker." He noted that stretches of worse-than-usual losses that trigger outflows have historically turned into appealing moments to put money to work, adding, "If you're focused on yield, this is probably as good of a time as any to buy in the last 10 to 20 years."
For everyday investors, the picture is mixed: money just left muni funds in size, relative value versus Treasuries looks better than it has in a year, and pros are split between bracing for more chop and eyeing the higher income.
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