Improving local and state government finances are bolstering inflows to muni ETFs.

“With local-government finances improving five years after the recession and the top federal income-tax rates the highest since 2000, investors are increasingly turning to ETFs as a way into the tax-exempt market,” according to Bloomberg.

Investors have also nibbled at rate-sensitive Build America Bond ETFs. Build America debt obligations were first created under President Barack Obama’s 2009 American Recovery and Reinvestment Act where municipalities sold $188 billion of the debt before the program expired at the end of 2010. The Build American Bonds helped diminish borrowing costs for state and local governments as part of a stimulus package. Local governments used the bonds to pay for infrastructure projects and received a 35% federal subsidy on interest payments.

The PowerShares Build America Bond Portfolio (NYSEArca: BAB) and the SPDR Nuveen Barclays Build America Bond ETF (NYSEArca: BABS), with durations of 9.29 years and 12.68 years, respectively, have added over $110 million in new assets on a combined basis this year.

Market Vectors High Yield Municipal Index ETF

Tom Lydon’s clients own shares of HYD.