The municipal market continues to be well-bid by evidence of continued strong flows into muni funds.

I believe we can expect the demand side of the equation to drive the market through year-end.

Amidst all the talk about the fiscal cliff, it seems to me that concern for higher personal tax rates in 2013 is bolstering the attractiveness of municipal bonds.

Additionally, the potential impact of a higher capital gains rate could be seen as enticing investors to seek shelter in municipal bond ETFs. [Muni Bond ETFs Rally to All-Time Highs]

They may be taking gains now, at the current lower rate and “parking” the proceeds in a tax-free vehicle, awaiting the right opportunity to re-enter positions.

Source: J.P. Morgan, Lipper Weekly Municipal Bond Fund Flows ending 11/21/2012. 

Market Vectors High Yield Municipal Index ETF (NYSEArca: HYD)

James Colby is a portfolio manager and senior municipal strategist at Market Vectors ETFs.