An exchange traded fund that invests in municipal bonds is on a five-day winning streak amid reports that supply is tight in this area of the fixed income market.

The iShares S&P National AMT-Free Municipal Bond Fund (NYSEArca: MUB) has rallied nearly 3% over the past week. [Muni Bond ETF Rises Despite Default Warning]

“Gains in the ETF are outpacing the underlying debt because money managers who have run out of bonds to buy are using it to mimic returns in the municipal market,” Bloomberg reported Monday.

“The supply in the muni market’s been highly constrained,” Dodd Kittsley, head of the due diligence group at BlackRock Inc.’s iShares unit, told Bloomberg. “The premium’s really a reflection of MUB as an access vehicle for the market and reflects this asymmetric liquidity in the underlying.”

The muni bond ETF had a good year in 2011, rising about 13%, according to Morningstar. Predictions of massive defaults in 2011 from noted analyst Meredith Whitney didn’t pan out. [Municipal Bond ETFs Turn in Solid Year]