Markets

Retail investors ignored the pullback in the state and local government debt market last week, ­committing the third-heaviest slug of new money to ­municipal bond mutual funds this year.

Tax-exempt money market funds managed to attract inflows for the first time in nearly a month, adding a modest $244.5 million for the week ended Sept. 6 to finish with $338.1 billion in total net assets, according to the Money Fund Report, a service of iMoneyNet.com.

Nearly all The Bond Buyer’s yield indexes rose this week, as tax-exempts weakened throughout the holiday-shortened week, erasing some of the pronounced gains taken in August.

A grand-slam judgment last month has emboldened the lawyers and investors seeking to recoup losses on $2 billion in municipal arbitrage funds run by Citigroup.

Investors continue to stuff cash into municipal bond mutual funds, exacerbating a supply-demand imbalance that has kept yields on tax-exempt bonds near historic lows.

With much of the market still in vacation mode following Monday’s Labor Day holiday, Minnesota plans to issue $899.6 million of general obligation bonds in the only sizable deal expected to arrive this week.

The dearth of tax-exempt issuance and exodus of investors from volatile equity markets have translated into lower yields across the curve in the traditional municipal market, prompting some analysts to question whether long-bond buyers will continue to assume the duration risk for such minimal gains.

The Bond Buyer’s weekly yield indexes were narrowly mixed, with some dipping to 43-year lows while others increased.

The unit investment trust has quietly blossomed into the dominant investing vehicle for Build America Bonds — the taxable municipal debt created under last year’s stimulus legislation.