Investors are snapping up municipal bonds, as states and cities get their financial houses back in order.

The Barclays Capital Municipal Bond Index has gained 3.4 percent so far this year through March 3. Munis tumbled last year amid an overall slump in bonds and concern about Detroit's bankruptcy filing and Puerto Rico's financial woes.

"I don't see a big fear factor anymore," Duane McAllister, a portfolio manager at BMO Asset Management, told The Wall Street Journal.

Editor’s Note: 250% Gains Bagged Using Secret Calendar (See Video)

Municipal bond funds have seen a net inflow of $925 million since Jan. 2, according to Lipper. In 2013 the funds saw a record outflow of $64 billion.

An unexpected rally in Treasury bonds also has boosted munis this year. The 10-year Treasury yield stood at 2.65 early Tuesday, down from 3.03 percent at the end of last year.

"After a bludgeoning in 2013, risks in the market are fairly valued," Chris Ryon, a portfolio manager at Thornburg Investment Management, told The Journal.

The rally in munis has recently pushed 30-year muni bond yields to a premium of just 11 basis points over 30-year Treasurys, down from 76 points last August, according to Thomson Reuters MMD.

Another factor helping munis this year has been a low supply of muni bonds, Dorian Jamison, a municipal analyst at Wells Fargo Advisers, wrote in a commentary obtained by Reuters.

Municipal bond issuance totaled only $14.1 billion last month, the lowest amount for a February in 14 years, according to Thomson Reuters, and the smallest total for any month since January 2011.

Editor’s Note: 250% Gains Bagged Using Secret Calendar (See Video)

Related Stories:

• Analysts Bullish on Muni Bonds
• Morgan Stanley: Muni Bonds Look Like a Poor Bet in 2014