"Demand from mutual funds, large buyers of muni bonds, has also improved, Pynchon said. After seven months of consistent outflows, investors have put money into funds four out of the past six weeks, data from Lipper FMI show. The Investment Company Institute, a trade group that tracks muni fund data, has shown positive flows into funds for nine weeks.
Investors also have a lot of cash on hand. That's because the muni market is in the midst of a significant summer reinvestment season, when investors receive money from maturing bonds and coupon payments. RBC Capital Markets estimates investors may have $30 billion to $40 billion in July to reinvest into munis.
"There's still more money than bonds out there, even with a large calendar," said Tom Spalding, senior vice president and portfolio manager at Nuveen Asset Management."