It appears the wave of cash flooding the industry all year may have finally crested.

Investors last week once again handed municipal bond mutual funds a smaller pile of cash than in the previous week.

Muni funds reported an inflow of $606.2 million during the week ended Oct. 21, according to Lipper FMI, the paltriest intake reported since mid-April.

While slightly above the historical average, the industry’s inflows the last two weeks have been decidedly below the recent trend.

Among the muni funds that report their figures weekly, the average inflow this year is $893 million. The past two weeks have been below $620 million.

“It definitely has slowed down in the last two weeks,” said Josh Gonze, who co-manages the municipal bond mutual funds at Thornburg Investment Management, including the $2.1 billion Thornburg Limited Term Municipal Fund.

Gonze said the retail investor is likely feeling satiated. Investors have snapped up municipal mutual fund shares all year as they took cash out of money market funds, which continue to yield a record low 0.05%, according to iMoneyNet.

Tax-free money market funds have bled more than $75 billion this year, according to the Investment Company Institute, and many municipal fund managers believe much of the money landing in their funds has come from that.

Gonze said retail investors finally started to lose interest in municipal bond funds when yields sank too low.

The yield on the 10-year triple-A muni, based on the Municipal Market Data scale, touched as low as 2.57% last month, the sickliest yield MMD has ever recorded.

“Interest rates perhaps reached a level where they just aren’t interested in putting more money to work,” Gonze said.

Barring an abrupt exodus of cash from municipal bond mutual funds in the last two months of the year, 2009 will demolish every conceivable record for fund flows.

Mutual funds have recorded $66.38 billion in inflows this year. No 52-week period since 1992 had previously exceeded $60 billion in inflows, according to Lipper.

Inflows this year have been complemented by $45.3 billion in market gains, pushing the industry’s assets up by more than $110 billion in 2009. The industry has grown by more than a third this year, to $455.42 billion in assets.

The net asset value per share of most of the biggest muni funds hit 52-week highs last month or early this month and have since retreated.

The $26.16 billion Vanguard Intermediate Term Tax-Exempt Fund’s admiral shares class is at a net asset value per share of $13.41, down from $13.73 at the beginning of the month.

The Franklin Federal Tax-Free Income Fund, with $10.41 billion in assets, is down to $11.83 from as high as $12.03.

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