The municipal market may be struggling to absorb the uptick in new supply, but muni bond mutual funds still saw their heaviest inflows since 2009.

For the week ended March 7, muni bond funds saw $1.2 billion of inflows from funds that report their flows weekly, according to Lipper FMI. That represented a huge increase from the week ended Feb. 29, when there were net inflows of $357 million.

Furthermore, these are inflow numbers the market hasn’t seen since the week ended Oct. 7, 2009. The market has seen 14 straight weeks of positive flows, and 25 weeks out of the past 27.

For the week, muni bonds yields outperformed Treasuries at the two-year and 30-year marks, but got hammered in the belly of the curve. But yields for both munis and Treasuries were weaker overall for a second straight week as volume in the primary rocketed and news from Greece was positive through the early part of the week.

Muni bond funds have seen strong inflows for more almost five months. At this time in 2011, fund flows were grim and the industry saw money hemorrhage from the sector.

Between mid-November 2010 and early June 2011, money exited funds typically by more than $1 billion a week. At its worst, investors in weekly reporting funds withdrew more than $4 billion in the week of Jan. 19, 2011.

This past week, assets for funds that report their flows weekly rose for the fifth consecutive week, inching up to $288.2 billion from $288.1 billion the previous week.

The value of the holdings for weekly reporting funds continued to oscillate wildly. This past week they plummeted by $990 million. The week before, they had increased by $972 million.

The four-week moving average for all municipal bond mutual funds that report their flows weekly saw an $873 million inflow, up slightly from an $843 million gain the week before.

High-yield muni funds also saw a particularly strong week of inflows. They have been positive for 13 of the past 14 weeks.

Funds that report weekly saw inflows of $291 million, Lipper said. The previous week, high-yield funds reported inflows of $12.2 million.

Assets for high-yield funds that report their flows weekly rose to $37.57 billion, up from $37.31 billion the previous week.

The value of the holdings for weekly reporting funds fell by $23.09 million. Last week, they rose by $257.2 million.

The four-week moving average for all high-yield muni bond funds that report their flows weekly was $172 million, up from a $138 million inflow the week before.

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