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Illustration: Rebecca Zisser/Axios

It's been bonds, not stocks, that have drawn major investment this year and municipal bonds have attracted particularly large and consistent inflows.

What's happening: Thought of as a slow and sleepy asset class preferred by retirees and risk-intolerant savers, muni bonds saw record inflows during the first quarter.

  • The flows were spurred by the Tax Cut and Jobs Act, a reduction in muni issuance and the Fed's U-turn on interest rate policy, analysts say.

Details: Data from Lipper shows cash has flowed to munis every single week this year, and the asset class has seen cash inflows of more than $1 billion or more in 15 of the 20 weeks this year that Lipper tracks.

  • That has brought muni bond net fund inflows to $36.8 billion, already the 3rd largest annual net inflow ever for the muni bond fund group and the highest inflows this early in a year in nearly 3 decades.

"Taxpayers are experiencing the effects of the limit on SALT deductions, which in many cases are increasing tax bills," analysts at RBC Wealth Management wrote in a note to clients last month. "We anticipate tax-bill sticker shock could stoke additional demand for tax-exempt securities."

Why it matters: The asset flows show investors are eschewing risk. While equities have seen nearly $100 billion of outflows from mutual funds and ETFs so far this year, investors have pumped close to $150 billion into bonds, EPFR data shows.

  • "[M]any institutional investors today say they see taxable municipals as an attractive late-cycle asset class," Scott Sprauer and Robert Burke, municipal portfolio managers at investment firm MacKay Shields wrote recently for Pensions & Investments.
  • "With the U.S. economic recovery now longer than all but one in history, and the global economy still fragile, many of these investors welcome the higher credit quality and more reliable ratings stability of municipals vs. other fixed-income sectors."

Yes, but: Investors also have been chasing riskier munis in an effort to increase returns, pushing $8 billion into into high-yield muni bond funds, also known as junk munis, through the first 5 months of the year. That's the highest inflows through May since at least 1992, according to Lipper's data.

Go deeper: Everybody wants U.S. bonds

Go deeper

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Fauci: Omicron variant will "inevitably" be found in U.S.

Photo: Chip Somodevilla/Getty Images

Anthony Fauci, the director of the National Institute of Allergy and Infectious Diseases, cautioned on Sunday that the COVID-19 Omicron variant will "inevitably" be found in the United States.

Driving the news: Fauci, Biden's chief medical adviser, told ABC's George Stephanopoulos on "This Week" that U.S. officials will meet with colleagues from South Africa later on Sunday to try to determine the severity of the cases, as countries scramble to learn more about the variant.

Updated 8 hours ago - Politics & Policy

Dems fear supply-chain blame

Illustration: Aïda Amer/Axios

As supply-chain kinks drive up prices and disrupt holiday shopping, Democrats are scrambling to show action and deflect blame.

Why it matters: With their party controlling both the White House and Capitol, vulnerable Democrats worry supply-chain snafus will hurt them in next year's midterms.

8 hours ago - World

Scoop: Germany urges Congress not to sanction Putin’s pipeline

Photo: Mikhail Svetlov/Getty Images

The German government has urged members of Congress not to sanction the Nord Stream 2 pipeline, arguing that doing so will "weaken" U.S. credibility and "ultimately damage transatlantic unity," according to documents obtained by Axios.

Why it matters: At a time when roughly 100,000 Russian troops are massing at its border, Ukraine views Nord Stream 2 as an existential threat to its security. The pipeline would circumvent Ukrainian transit infrastructure and deliver Russian gas directly to Germany, eliminating one of the last deterrents Ukraine has against an invasion.