The flow of cash washing into the municipal bond mutual fund industry continues to slow down, to what one important measure counts as the slowest pace since January 2009.

Municipal bond mutual funds that report their figures weekly posted a net inflow of $167.8 million during the week ended Oct. 13, according to Lipper FMI.

Among all funds, including those that report their figures monthly, the average inflow has been just $199 million a week the past four weeks, the lowest four-week average since the third week of January last year.

This is indicative of the slower pace of flows that has emerged since August.

According to the Investment Company Institute, investors entrusted more than $1 billion a week on average to municipal funds each of the first three months of 2010.

Flows then tapered off in the spring, falling to $230 million a week in April.

They slowly rebounded, reaching a plateau in August. Investors bestowed an average of $1.28 billion a week to municipal funds in August, according to the ICI, which was the heaviest month for inflows since September 2009, and the sixth-heaviest of all time. All of the top five were last year.

Flows then tailed off again. Preliminary numbers show funds commanded $590 million in new money a week in September.

Ashton Goodfield, head of municipal trading at DWS Investments, in a press briefing last week said investors may have begun to balk at the low yields offered on municipal bonds.

The benchmark 10-year triple-A municipal bond reached a record-low yield of 2.17% on Aug. 25, according to Municipal Market Data. It has since climbed up only about 15 basis points.

“The yields are fairly low,” Goodfield said. “Recently we’ve seen yields on triple-A munis hitting lows for the generation. That may be slowing people down, but I don’t think the flows will stop. … It’s been quite a good year for munis and money keeps flowing in.”

Indeed, despite the recent slowdown, flows are still on pace for the second-strongest year ever, after last year’s record-smashing $69 billion haul.

A $794 million market gain last week on bonds helped fuel the industry’s assets to a record high of $527.6 billion.

The industry’s assets have grown 13.6% this year and 54.3% since the end of 2008.

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