Reuters interview finds more US investors saying 'no thanks' to muni bonds

July 8 - a growing number of U.S. investors are either scaling back or dumping outright their positions in what was long considered the least volatile and safest of markets. So far this year, municipal bond funds have enjoyed $5.1 billion of net new cash while U.S. government agency and Treasury bond funds have taken in $9.1 billion, extending a record-breaking year for bond funds and exchange-traded funds of $396 billion in 2009, according to Lipper. The tax-exempt muni market has sheltered investors from the sovereign credit storm so far this year: Total returns year-to-date are 3.54 percent while the benchmark Standard & Poor’s 500 index <.SPX> is down about 5 percent through July 7. For their part, U.S. Treasuries prices are up 6 percent for the same period, according to Barclays Capital. But as financial markets enter the second half of 2010 with risks of a “double-dip” recession growing, U.S. investors are bracing for even harsher fiscal deterioration at states and localities and, consequently, are shying away from the $2.8 trillion municipal bond market. “The balance sheets of corporate America are in much better shape than that of our governments, states and localities,” said Tom Sowanick, chief investment officer of OmniVest, which oversees more than $1 billion. “We are completely out of munis, and we don’t plan on buying any even though some are yielding more than 5 percent. No thanks.”