Salient to Investors:

Bill Gross at Pimco cut his local-debt allocation in the Total Return Fund by 1 percent to 4 percent in May, the lowest since July, and reduced Treasuries to 37 percent of the fund’s assets in May, but says the Fed will not raise interest rates for years, making intermediate Treasuries a buy at 2+ percent.

Lipper US Fund Flows says individuals, who own 70 percent of munis directly or through funds, pulled $1.6 billion from US muni mutual funds in the past week, the most in 2013.

Matt Fabian at Municipal Market Advisors said investors are set to receive the 3-month wave of redemption funds but are still waiting for yields to climb higher before buying tax-exempts, while some are being drawn to stocks. Fabian said when yields on benchmark tax-exempt debt maturing in 10 years reach 2.4 percent to 2.5 percent, demand will increase.

Yields on 10-year munis have declined 8.3 percent on average in July in the past 4 years, trailing only April’s average drop of 9 percent.

Gary Pollack at Deutsche Bank said the bid side of the muni market is not as deep and broad as other fixed-income sectors, so selling pressure in the magnitude of billions will have a negative impact on munis, while 2.5 percent to 3 percent yields will attract individual investors.

George Friedlander et al at Citigroup said the increase in yields is enough to make some yield levels attractive relative to risk.

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