Muni Investors Rush for Exits

NEW YORK (TheStreet) -- Municipal bond funds saw $1.9 billion in outflows this week as investors continue to back away from the market.

"The outflow was more than twice the prior week's level and represents the 39th week of declines this year, totaling over $50 billion in aggregate year-to-date," wrote John Dillon, Chief Municipal Bond Strategist at Morgan Stanley Wealth Management, in a report published Friday. More than half the outflow came from long term funds, the report stated.

The move out of bond funds is consistent with data from TrimTabs earlier this week which states that investors have pulled a record $70.7 billion from bond mutual funds in 2013.

The retreat from bond funds is likely inspired by expectation of rising interest rates once the Federal Reserve begins removing its $85 billion in monthly bond purchases.

The effect may have been exacerbated this week by Moody's Investors Service putting Puerto Rico's general obligation and related debt -- $52 billion of securities in all -- on downgrade watch Dillon wrote.

-- Written by Dan Freed in New York

Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

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