The worst rout in the $3.7 trillion municipal-bond market in more than two years is proving a gift for wealthy investors buying through brokers and professional asset managers who see a chance to make long-term money.

With state and local debt at its cheapest since April 2011, such buyers are grabbing munis with yields at record highs, according to data compiled by Bloomberg. For example, Ace Ltd., a Zurich-based property and casualty insurer, increased its muni holdings by 15 percent in the first six months of this year.

Meanwhile, individuals who invest in munis mainly through mutual funds, a strategy that requires less money, have withdrawn the most since February 2011 on concern that the Federal Reserve will scale back bond purchases, sending interest rates higher and eroding the value of the funds.

“It’s a fantastic opportunity” as withdrawals force sales by funds, said Peter Kuhn, a 52-year-old business owner from San Jose, California. After investing more than $1 million in munis through online broker-dealers, Kuhn said he has been buying more in the past two weeks.

One investment -- $250,000 of general-obligation debt issued by San Ysidro School District in San Diego County -- will yield almost 7 percent, Kuhn said by telephone. The zero-coupon bonds will pay debt and interest in future years, “and then you get all the tax-free benefits,” he said.

Getting Out

Mutual funds holding U.S. municipal bonds hemorrhaged $24.5 billion over 15 weeks through Sept. 4, the most since February 2011, Lipper US Fund Flows data show. As investors shunned tax- free fixed-income investments, yields on benchmark 30-year munis rose to 4.76 percent yesterday, near the highest rate since April 2011, data compiled by Bloomberg show.

Amid the withdrawals, smaller trades have increased. In July and August, transactions of $100,000 or less, typically involving individual investors, accounted for 85 percent of municipal-debt trading, according to Municipal Securities Rulemaking Board data. That’s the highest proportion of such trades for those two months since at least 2006, the data show.

Other investors adding munis to their holdings include property and casualty insurers such as Ace. The company had $4.45 billion of the securities, based on fair-market value, as of June 30, compared with $3.87 billion at the end of last year, regulatory filings show. State and local debt accounted for 7.9 percent of its fixed-income investments, up from 6.8 percent on Dec. 31.

CNA Buying