Chicken Little was wrong about municipal bonds and the funds that invest in them. Sort of.

The sky didn't fall on municipal markets last year or this year, but the weather sure did change in this once-sleepy sector for investing. Nervous money, spooked off last year by banking analyst Meredith Whitney's prediction on the "60 Minutes" TV show of widespread defaults, is now flocking back to the tax-free debt of cities, states and other public entities such as colleges and toll bridges.

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