Mutual funds have emerged as the dominant source of selling pressure for state and local government paper in the new year as investors keep pulling out their money, forcing fund complexes to sell bonds into an already jittery market.

Investors have withdrawn $25.3 billion — a sum that exceeds the gross domestic product of Panama — from municipal bond mutual funds the past nine weeks, according to Lipper FMI. Funds that report their figures weekly posted a net outflow of $1.51 billion for the week ended Jan. 12.

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