Investors shrugged off a rough patch for municipal bonds and continued plowing money into muni mutual funds last week.

Investors poured $462.3 million into muni funds that report their figures weekly during the week ended March 4, according to AMG Data Services.

It was the ninth consecutive weekly inflow. Investors have entrusted $4.64 billion to muni funds since the beginning of the year, according to the Arcata, Calif.-based fund tracker.

Because of inflows and market appreciation, total assets for all muni funds - including those that report monthly - have leaped to $364.46 billion from $341.9 billion at the end of last year.

While the inflows earlier this year came during a fierce rally in the muni market, investors are now continuing to pour money into funds despite weakness in the underlying bonds.

The yield on triple-A 10-years spiked 23 basis points during the week measured in this report, according to Municipal Market Data. The price of the triple-A 10-years slipped 12 straight sessions leading up to Wednesday.

The yield has kited to 3.29% from as low as 2.84% on Feb. 12. That was nearly the lowest yield in 28 years of data available on MMD.

"People realized that your absolute yield wasn't that enticing," said Jeffery Timlin, a portfolio manager with Sage Advisory Services. "It might deter people from entering into the municipal market. ... The attractiveness from a yield perspective on munis has definitely lost some of its luster."

The week examined in this report was horrid for many types of investments, particularly stocks.

The Standard & Poor's 500 Index tumbled 6.8% during the week and is now down 25% for the year, following a roughly 40% plunge in 2008.

The yield on triple-A rated, seasoned corporate bonds ticked up 15 basis points during the week, according to Federal Reserve data. That yield is up 66 basis points since the beginning of the year.

Yields on Baa-rated corporates jumped 19 basis points during the week.

Though a measure of market volatility known as the VIX, or the "fear index," has abated a bit since the height of the credit crisis, it remains higher than the period after the terrorist attacks of Sept. 11, 2001, or the period of Russia's sovereign debt default in 1998.

During a muni rally that lasted from mid-December through mid-February, it appeared high-grade munis were gaining traction as a safer alternative to stocks or corporate bonds.

Even with very low default rates relative to corporate bonds, high-quality munis boast higher yields - before and especially after taxes - than Treasuries or money-market funds.

The 10-year Treasury yields 2.84%. Assuming a 28% tax bracket, the tax-equivalent yield on triple-A 10-year munis is 4.57%, or 161% of the Treasury yield.

Munis, though, have sold off in this latest round of fear and illiquidity.

The Bond Buyer 20-bond index of general obligation yields climbed nine basis points last week.

James Colby, senior municipal strategist at Van Eck Global, said the continued influx of cash into muni funds is evidence of "latent demand" for state and local government debt.

With expectations of higher taxes, many big companies cutting dividends, and cash flooding out of stock funds, Colby is not surprised to see retail investors socking money into muni funds.

"They are an attractive sale," Colby said of munis. "Put in the context of its relative value versus similar fixed-income assets, it starts to make some sense as to why people migrate to munis and consider it a good near-term opportunity."

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