BOSTON ( TheStreet) -- Vanguard Investments withdrew a request with the Securities and Exchange Commission to launch three municipal bond funds, the latest sign that market is drying up as investors grow concerned about cash-strapped local governments.

Investors have stampeded out of municipal bond funds since late last year. There was an estimated $11 billion in outflows tied to municipal bond fund redemptions in the last few months of 2010, which turned the tide of fund inflows to outflows from all bond funds in the fourth quarter, according to EPFR Global.

Vanguard, one of the largest mutual fund firms, with $1.4 trillion in assets under management, applied in June for permission to start Admiral-class and exchange traded funds of three municipal bond types: short-term, intermediate-term and long-term, but withdrew that request today.

The move is likely the result of the change in investors' sentiment and an expectation that there would be limited demand for such funds. Indicative of how quickly it has turned negative, on Nov. 22, Vanguard posted a column titled "For muni bond investors, dire headlines may conceal opportunity."

The column was supportive of municipal bond fund investing due, in part, to that market's history of stability and quoted a municipal bond fund manager as saying that at that point, municipal bonds were "very attractively priced right now even before the tax benefit, and we're seeing investors take advantage of the relative cheapness of municipals versus other fixed-income asset classes."

Vanguard currently manages over $67 billion in long-term national municipal bond portfolios and another $18 billion in state-specific muni-bond portfolios.

Municipal bonds are issued by cities, counties, redevelopment agencies, school districts, public utility districts, publicly owned airports and seaports, and any other governmental entity below the state level.