touched off a rally in an often overlooked part of the market, and Wells Fargo says it's not slowing down.for state and local tax payments. George Rusnak, co-head of global fixed income strategy for the Wells Fargo Investment Institute, says that got investors hunting for options with lower tax liabilities., which are used to fund spending by a county, city, or state. Since they're usually exempt from federal income taxes, the tax law sent a wave of money into the sector.
Rusnak says $23.4 billion has flowed into muni bond funds between Jan. 1 and early April. That's a record start to the year, and dwarfs the full-year total for 2018. This chart shows that after investors pulled money out of the asset class in late 2018, they've hurried to put it back in this year.It contrasts sharply with the stock market, from which money has been pulled all year, to the tune of $90 billion, according to Bank of America Merrill Lynch.
"We expect municipal-market demand to remain strong as five of the last nine months of this year are scheduled to have record amounts of maturing bonds," he said. Investors in the sector will likely reinvest that money in newer bonds. Rusnak says a second factor is adding to the gains in bond prices: limited supply. He writes that the value of maturing and redeemed bonds has been far greater than the value of new bonds being issued.