The municipal bond mutual fund industry grew by the smallest amount last week, for the first time since June as investors handed over the smallest slug of new money, with intermediate-term muni bonds absorbing the biggest hit.

Investors during the week ended Oct. 6 entrusted just $133.4 million to municipal funds that report their figures weekly, according to Lipper FMI. That was the weakest inflow in 14 weeks.

All funds, including those that report their figures monthly, have reported an average of $478.1 million in inflows a week the past four weeks, which is the slightest pace since mid-July.

Last week's inflows were not enough to overcome the $375.7 million in market losses the industry reported for the week. The market took a minor lump last week as an $11 billion mountain of new municipal debt came out of the blocks.

This hearty supply came just as retail demand for muni bonds, as measured through the proxy of fund flows, had begun to wane.

The mutual fund industry reported a 0.07% loss for the week. The biggest hit came to intermediate-term funds, which reported 78% of the industry's losses despite holding 22% of its assets.

The reshaping of the yield curve last week explains this dynamic. The curve became more "humped," according to the Municipal Market Data scale, with yields on maturities of eight to 10 years spiking about nine basis points, while short and long yields were basically unchanged.

With market losses outpacing inflows, municipal funds' assets shrank slightly, to $527 billion. This was just the fourth week this year the industry's assets contracted. Even during 2009, which set the record with $69 billion in new money from investors and positive inflows every week, assets routinely fluctuated from week to week because of market fluidity.

The tide of new money has slowed and funds are on pace for about $40 billion in inflows for the year, which would be the second-most ever. However, the increase in assets has been a bit steadier because of consistent gains in the municipal bond market.

The industry's assets have grown 13.5% this year and 54.5% since the end of 2008.

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