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Who’s Afraid Of The Fiscal Cliff? - Thursday, 11/29/2012

Fiscal Cliff Ahead ImageThe municipal market continues to be well-bid by evidence of continued strong flows into muni funds. I believe we can expect the demand side of the equation to drive the market through yearend.

Amidst all the talk about the fiscal cliff, it seems to me that concern for higher personal tax rates in 2013 is bolstering the attractiveness of municipal bonds. Additionally, the potential impact of a higher capital gains rate could be seen as enticing investors to seek shelter in municipal bond ETFs. They may be taking gains now, at the current lower rate and "parking" the proceeds in a tax-free vehicle, awaiting the right opportunity to re-enter positions.

 

2012 YTD Cumulative Municipal Bond Fund Flows
Cumulative Municipal Bond Fund Flows Graph

Source: J.P. Morgan, Lipper Weekly Municipal Bond Fund Flows ending 11/21/2012. 


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