Citi Research'​s latest "Short Duration Strategy" writes that "SIFMA humbles (​us) yet again." Author Vikram Rai comments, "Just two weeks ago, we stated that '​a seasonal increase in SIFMA resets as we approach tax season is a foregone conclusion. But, what will be the magnitude of this increase is the interesting question.' Well, SIFMA has richened for two successive weeks since and has again reminded us that it has the power to surprise us and that nothing about the tax-​exempt short term markets is a '​foregone conclusion'. So why has SIFMA richened?" Citi'​s piece explains, "This year, we are witnessing extremely strong demand for tax-​exempt paper as many high net worth individuals have realized that they will face higher tax bills as a result of TCJA. This increase in demand, which we believe is somewhat permanent, has resulted in record municipal fund flows.... In our view, SIFMA has richened despite the fact that tax-​exempt money funds are witnessing the seasonal tax season related outflows because: Municipal bond funds have temporarily parked some of their abundant cash in VRDNs as they look for entry points in a rich fixed-​rate tax-​exempt market. This is reflected in low dealer inventories, which is unusual when tax-​exempt money funds are witnessing outflows. Thus, there is no upward pressure on SIFMA from the dealer side which is typically the cause for higher resets."

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