Despite volatility in the municipal market, sales of individual tax-free bonds to retail investors have been brisk even as cash withdrawals from muni mutual funds are still high, experts say.

A New Jersey investment firm is one shop that says it has seen steady retail demand for high-quality individual municipal bonds despite the turmoil in the tax-exempt fund industry.

Higher yields have helped draw individuals to bonds.

“The decline in municipals over the last several months has provided a good opportunity for individual investors,” said Bill Walsh, founder and president of Hennion & Walsh in ­Parsippany, N.J.

January saw the height of the buying opportunity, when 10-year triple-A general obligation bonds backed up to a 3.46% yield and the 30-year rose to a 5.08% on Jan. 14, according to Municipal Market Data.

The market rallied during a short-lived flight-to-quality trade earlier this month in the aftermath of the deadly earthquake and tsunami in Japan, but later climbed back to pre-quake levels when that trade unwound in early to mid-March.

On Tuesday, the generic triple-A GO in 10 years ended at 3.11%, while the 30-year ended at 4.79%. Still, experts say even though absolute yield levels are down from recent highs and the tone of the market varies from day to day, retail investors continue to have a hearty appetite for individual bonds given attractive yields relative to taxable bonds.

As of Tuesday, triple-A GOs in 10 years yielded 89.57% of the 10-year Treasury bond, 101.18% of 20-year Treasuries, and 105.79% of 30-year bonds, according to MMD.

Chris Shayne, an analyst and director at BondDesk Group LLC, said even though yields fell, spreads tightened, and both buying and selling activity decreased in February after peaking in January, retail investors were more aggressive buyers than sellers of individual bonds last month.

The Mill Valley, Calif.-based firm operates a fixed-income trading platform and recently launched its first-ever Municipal Market Transparency Report highlighting trends involving retail investors and individual municipal bonds.

The strength of retail buying was ­demonstrated by a buy-sell ratio of 2.6 in February, which indicates there were 2.6 times as many retail buyers than sellers of individual municipal bonds, Shayne said. Mom-and-pop investors bought $345.90 billion of individual bonds during the month, but sold $135.09 billion, he said.

The reduced selling activity in February resulted in roughly 7,000 retail trades a day market-wide on bonds with face value of less than $100,000, compared to 9,000 trades a day during the January panic, according to Shayne, who uses Municipal Securities Rulemaking Board trade data to track the action.

Trades hovered between 5,000 and 6,000 a day for most of 2010 — until November, when predictions of massive defaults of muni bonds and municipal bankruptcies plagued the market.

Among other trends, the February report showed the retail market’s preference for tax-exempt revenue bonds, which accounted for 63% of all buy trades, while GOs accounted for 29% of all buy trades by retail.

In addition, the retail crowd flocked to both double-A rated tax-exempt GO and revenue bonds from California, New York, and Texas. Those states represented 16.5%, 9.8%, and 11.8%, respectively, of all trades in February. By contrast, retail buyers only accounted for 4% each of all taxable GO and revenue bond trades.

The monthly reports are free and available as at www.bonddeskgroup.com.

Meanwhile, the demand for high-quality individual bonds has remained brisk in March — especially as retail investors are still turning their noses up at tax-exempt bond funds, sources said.

For the week ended March 23, investors pulled $640.37 million of cash out of municipal bond mutual funds that report their flows weekly, according to ­Lipper FMI.

That’s down from a record $4 billion in January at the height of the media hype about a possible municipal market meltdown.

Walsh is promoting the sale of individual bonds to investors who want to maximize income and preserve their capital as retirement nears. Baby boomers approaching retirement are especially interested in safety and income. “They are not like fund or day traders,” he said. “They are buy-and-hold investors.”

Walsh’s full-service shop manages over $2 billion of client assets, the bulk of it munis. His customers are actively buying tax-exempt bonds that have a strong tax backing or a dedicated revenue stream. Current yields are attractive compared to other investment alternatives — namely, equities or money market funds.

“The opportunities have been in higher-quality GO and essential-purpose revenue bonds,” particularly 5% coupons and yields on the long-end of the market, according to Walsh.

For instance, he said, his firm recently saw keen interest for bonds from a $641 million New York City GO sale, $400 million of which was a tax-exempt portion priced by Bank of America Merrill Lynch earlier this month. The deal offered a 3.35% coupon in the final 2020 maturity at a 5% yield.

“That seems to bring individuals in,” he said. “For an individual in a high tax bracket, that’s close to 8%” on a taxable equivalent yield. The bonds came at 57 basis points over the generic, triple-A GO scale at the time of the pricing, according to MMD.

Walsh said individual municipal bonds give retail investors the safety and comfort they seek but rarely find in other investments, such as equities.

While bond buyers are concerned about cities and states struggling to balance budgets by cutting services and curtailing spending, Walsh continues to buy tax-exempt securities from municipalities across the country, in both the primary and secondary markets.

“States have budget problems, but debt service for most state GOs is a negligible amount of their budget,” behind pensions and other spending, he said. “There are going to be defaults, but [they will be] on story bonds and low-quality junk bonds — bonds that are not recommended for safety and income.”

Walsh’s advice to individual investors going forward is to never compromise when it comes to quality in municipal investments.

“Don’t go for the extra yield — buy safety and get your income,” he said.