The tide of money washing into municipal bond mutual funds picked up again last week, offering hope that mutual funds will continue to provide a pillar of support to municipals.

Municipal mutual funds have been posting inflows of $1.45 billion a week on average for the last four weeks, according to Lipper FMI.

That four-week average is the highest since late October and compares to the previous week’s four-week moving average of $1.09 billion.

Mutual funds have been drowning in cash all year.

According to the Federal Reserve’s report last week on who owns what, mutual funds’ holdings of municipal bonds swelled by $70.4 billion through Sept. 30, to $460 billion.

Many analysts ascribe the municipal bond market’s strong showing this year in part to robust demand from mutual funds armed with all this new money.

The migration of cash into mutual funds this year is mainly an expression of investor disgust with low yields on short-term safe havens, many analysts say.

In an effort to stimulate the economy, the Fed has kept its target for short-term interest rates essentially at zero all year.

That has dragged down rates on all types of short-term products, particularly those purchased by tax-free money ­market funds.

The Bond Buyer one-year note index, which is based on one-year tax-exempt note yields, fell three basis points last week to an all-time low of 0.49%. The previous record low was 0.52% the previous week. The index began on July 12, 1989.

Tax-free money funds, which invest in ultra-safe ultra-short-term municipal debt, yield just 0.03%, according to ­iMoneyNet.

Impatience with yields at such sickly levels has chased $84.24 billion out of tax-free money funds this year, according to the Investment Company Institute.

The similarity between mutual fund inflows and money market outflows is not a coincidence, analysts say.

Phil Fischer, head of muni research at Bank of America Merrill Lynch, said Fed chairman Ben Bernanke’s statement last week about rates bodes well for a continuing flood of cash out of money market funds and into municipal bond funds.

Bernanke foiled expectations that rates may come up sometime soon, saying he expects the target for short-term rates to remain at zero for an extended time.

“Since Bernanke indicated very clearly this week that he expects to keep short-term rates at essentially zero for the foreseeable future, those flows look as though they’re going to continue supporting the short end of the tax-exempt curve at the expense of money markets,” Fischer said.

In its outlook for next year, a team of analysts from Keefe, Bruyette & Woods said they do not expect short-term rates to peek above 1% until 2011.

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