Investors in municipal-bond mutual funds got a shock if they looked at prices last weekend. Thanks to a large supply of new muni issues, worries about credit insurers and general deterioration in the debt markets, munis plunged the last week in February, culminating in a dive off the cliff on Leap Day, Feb. 29. Such turmoil in securities long regarded as conservative and safe illustrates how unsettled the market is.

T. Rowe Price's Tax-Free Income Fund (PRTAX) was typical. From late January to Leap Day it suffered it suffered its second-worst drop in net asset value this decade, falling by 5.9 percent. (For those of you used to stock gyrations, a 5.9 percent move is huge for a bond mutual fund.)

Munis got hammered so hard that on Monday many were selling for prices that put their interest yields higher than those for similar Treasury issues. Some highly rated issues were yielding more than 5 percent, Bloomberg reported. And of course municipal-bond income is free from federal tax, and Treasury-bond income isn't. That made the price discrepancy even crazier. And these weren't junk bonds, either. Many were "pre-refunded," meaning they were fully backed by Treasuries in escrow -- the closest thing to risk free.

Bond pros pounced early in the week. First news emerged that bond god Bill Gross, of PIMCO, was snapping up munis. Gross usually deals in taxable bonds, so for him to jump into munis the value must have been extraordinary. He bought $1.5 billion worth. Then it became known that Wilbur Ross, the "vulture" investor who purchased the assets of Bethlehem Steel out of bankruptcy, was also buying. At the close of business yesterday T. Rowe Price's Tax-Free Income Fund had risen from its Feb. 29 low of $9.44 per share to $9.69 -- recovering about half its February loss.