Many Whose Munis Were ‘Called’ Acquire New Ones : Securities: Although the yields are lower, municipal bonds still offer tax-free returns--and they’re safe.

Municipal bondholders may well be the most resilient investors around, returning to the market even after they were bounced out.

Many bond buyers were left scrambling for new investments last week as state and local governments redeemed as much as $8 billion in municipal bonds before their maturities.

The record early redemptions of bond principal, known as “calls,” were a shock to investors accustomed to earning 10% or more on tax-free bonds issued a decade ago. Municipal bonds issued these days offer yields about half that amount.

Still, a majority of investors faced with the prospect of sharply lower returns on their investments are expected to plow much of their money right back into municipal bonds.

Despite their lower yields, municipal bonds are still considered one of the safest investments around for people seeking tax-free returns. Interest on munis is exempt from federal taxes and, in many cases, state and local taxes.

“Munis continue to be one of the few opportunities to shelter income from taxation,” said Ron Loukas, vice president and manager of municipal trading and underwriting for Fidelity Capital Markets in Boston.

In fact, in the weeks before last Wednesday’s big redemption, some investors, anticipating that their bonds would be redeemed, began sinking money into municipal bond funds.

Joe Piraro, a portfolio manager with Van Kampen Merritt Investment Advisory Corp. in Oakbrook Terrace, Ill., said that in the 20 days leading up to last Wednesday, investors rushed almost $2 million a day into the firm’s $900-million insured muni fund--a roughly 50% increase from previous investment levels.

“People are recognizing that interest rates could go lower, and you don’t want to miss too many opportunities,” Piraro said.

Indeed, one day after the big redemption, the Federal Reserve lowered its discount rate, prompting major banks to lower their prime lending rates.

But what about those afraid of being burned by another redemption? Not likely. The danger of state and local governments redeeming bonds prior to maturities is now sharply diminished, says Perry H. Beaumont, a financial strategist for Swiss Bank Corp. in New York.

“The likelihood of being called is less in a high interest rate environment,” said Beaumont, noting that interest rates, now at historic lows, are expected to start moving up in the next year.