Investors have had a nice four-year run in municipal bonds. Since the start of 2000, national long-term muni bond indexes have returned 8.5 percent annualized.

The Investment Company Institute has reported $119 billion of cumulative net inflow into tax-exempt mutual funds over this period, bringing assets to a record $840 billion. Tax-exempt closed-end funds have grown to $90 billion, and the tax-exempt ETF universe has expanded to 30 funds with more than $8 billion.

As millions of retiring baby boomers search for yield while the Fed keeps holding interest rates low, munis are riding a wave of momentum. Affluent investors also are motivated by fears of rising taxes, including a new 3.8 percent Unearned Income Medicare Contribution Tax (UIMCT) that began on 1/1/13. For high-income taxpayers, UIMCT will redraw Taxable Equivalent Yield tables, making municipals even more attractive.

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