Investors bequeathed another more modest sum of cash to municipal bond mutual funds last week, offering further evidence that the blitz of new money barraging the industry has eased to a more moderate pace.

Municipal mutual funds reported $734.6 million in new money from investors during the week ended Nov. 4, according to Lipper FMI.

While stellar by historical standards, this was the fourth straight weekly inflow of less than $1 billion. Funds reported weekly inflows exceeding $1 billion for 11 consecutive weeks before the slowdown that began on Oct. 14.

This has been a historic year for municipal bond mutual funds. Investors have poured $69.81 billion into the sector, which is already double the heaviest inflow over any 52-week period since Lipper started keeping track in 1992. Coupled with $40 billion in market gains, the new money has lofted the industry to $453.93 billion in assets, up from $341.93 billion at the beginning of the year.

Still, evidence that the inflows have slowed down is all over Lipper’s tables.

The industry’s 599 funds have reported an average of $1.16 billion in inflows a week for the past four weeks.

That is the slowest rate over any four-week period since April, and only the second time since early August the four-week average was below $2 billion.

The average over the past four weeks is 47% below the average over the past four months.

“Lately the cash flows into mutual funds have probably slowed a little bit,” said Chris Johns, who manages a $250 million Colorado fund for the Aquila Group.

His explanation: sickly yields on municipal bonds finally repulsed retail investors.

The magnitude of new money mutual funds have commanded has given fund inflows new prominence.

Many analysts attributed the rally late in the summer to mutual funds putting their money to work amid scarce supply.

Now that flows appear to be slowing down, some analysts worry about how well the market can absorb new supply.

“The sharp drop in fund flows has led to reduced demand for new deals, and sent signals to dealers and traders that clearing the new-issue calendar could become difficult,” Phil Villaluz, municipal strategist at Advisors Asset Management, wrote in a report last month. “The direction and magnitude of flows into bonds funds could play a key role going into year-end.”

Like Johns, Villaluz also attributed the pullback in fund flows to investors “balking at paltry yields.”

The yield on the 10-year triple-A had plunged all year, based on the Municipal Market Data yield scale. The 10-year yielded 3.53% to start the year and by the beginning of last month had lopped off nearly a full percentage point.

Plummeting yields did not seem to deter investors, even when the yield reached an MMD-record low of 2.57%.

By the time investors began taming their investments in mutual funds, yields had already begun to bounce back up.

Coinciding with the slowdown in inflows, the pick-up in yields has given fund managers an additional headache — municipal mutual funds have reported nearly $10 billion in market losses the last four weeks.

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