Inflows into municipal bond mutual funds slowed last week as the muni market drifted lower.

During the seven days ending Jan. 28, investors poured $289 million into muni funds that report their figures weekly, AMG Data Services reported last week. It was the lightest inflow in three weeks and a significant slowdown from the $1.21 billion investors entrusted to municipal funds over the past two weeks.

Still, muni funds have attracted net deposits from investors every week this year after 2008 closed out with 15 consecutive weeks of outflows. Clients withdrew $2.72 billion the last four weeks of last year.

The inflows trailed a sturdy rally in the bond market that began in mid-December. The yield on the triple-A, 10-year muni plunged 140 basis points from Dec. 15 to Jan. 15. Then the rally stalled and the yield has since ticked up 18 basis points.

Dick Berry, a senior portfolio manager at Invesco AIM, said muni yields have been too fat relative to Treasuries for investors to ignore.

The yield on the 10-year Treasury note collapsed from 4% in mid-October to hardly more than 2% in December.

The yield has since rebounded to about 2.8%, which is still lower than the 10-year triple-A rated municipal bond. Until last year, the triple-A muni never yielded more than 95% of the 10-year Treasury.

"The low yields on Treasuries have kind of forced people to look for something that offers a little more," Berry said.

Assets at all municipal mutual funds - including those that report their figures monthly - have grown by $14.4 billion since Dec. 17, reflecting both market appreciation and investor inflows.

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