The six-month torrent of cash into municipal bond mutual funds pushed the industry to its most bountiful level of assets under management ever last week, according to AMG Data Services.
Investors poured $776.6 million into muni funds that report their figures weekly during the week ended July 8, AMG reported.
This figure only includes funds that report their figures weekly. All funds, including funds that report their figures monthly, are recording inflows of $1.41 billion a week, based on a four-week moving average.
The latest inflows cap a turnaround that would have seemed unlikely half a year ago.
The muni fund industry lost 18% of its assets in 14 weeks late last year. Panicked selling and a global flight to safety chased $12 billion out of muni funds and forced $49.46 billion in market losses during those 14 weeks.
Investors favored only the most iron-clad safe havens. They spirited money out of stocks and long-term bonds and into Treasuries and money market funds.
The yield on the 10-year Treasury fell below 2.1% in late December. Money market funds, which put money only in ultra-secure, short-term investments, attracted $523 billion between Sept. 23 and Jan. 13, according to iMoneyNet.
During this flight to safety, muni funds' assets tumbled from the then-record $397.55 billion on Sept. 10 to $336.94 billion on Dec. 17.
Starting in January, investors began squirreling money into muni funds again.
As investors became more willing to stomach risk this year, money gushed out of Treasury bonds and money market funds and into bond funds and stocks in search of better yields.
The $3.6 trillion money market fund industry has shed more than $80 billion since mid-January. The 10-year Treasury yield is 110 points fatter than it was at the beginning of the year.
Lately, the cash has been flooding municipal funds at a rate that would be difficult to exaggerate.
Muni funds' assets have grown more than 15% in the past six months, by far the fastest rate of growth in a decade and a half.
The 10 heaviest inflows based on the four-week moving average have all been in 2009.
Inflows in the last six months have exceeded inflows from any 12-month period since AMG started keeping track in 1992.
Investors have entrusted $34.3 billion to muni funds in the past six months, a sum greater than the annual gross domestic product of Uruguay. The muni fund industry's assets under management, now at a record $399.68 billion, are more valuable than the gross domestic product of Virginia.
Phil Condon, who heads municipal strategy at DWS Investments, said retail investors have grown increasingly comfortable with munis because they occupy a sweet spot in finance.
Treasuries and money market funds offer unassailable security and liquidity, but, for some investors, not enough return.
The average 12-month yield on a taxable money-market fund is 1.06%, according to iMoneyNet. The one-year Treasury bill yields 0.44%.
Many long-term mutual funds, meanwhile, offer yields of 4.5% or 5%, Condon said.
Stocks and real estate offer potentially higher returns, but, for some investors, too much risk.
The Standard & Poor's 500 Index is down 44% from its peak in October 2007, and the Case-Shiller 20-city composite index of home prices is down 33% in the past three years.
The default rate on triple-A and double-A rated municipal bonds is zero.
Condon said munis represent a comfortable middle ground for investors who like to generate decent returns without losing money.