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>>good place to park some money for a safe temporary investment (.5 to 1 yr)<<

As you've discovered long-term bonds are not a place for short-term savings. The reason is long-term bonds fall in price as interest rates rise.

>>should I bail, or should I hang in there.<<

Depends on what you think the future trend in long-term rates will be. If rates fall the fund will rise in price, and vise versa.

>>Would it be better to just put the money in a money market even though that wouldn't be tax free?<<

Vanguard has a tax-free PA money market (1-yr yield = 3.18% as of 3/31/99).

>>Also, since this is a long term municipal bond fund, would the 30-year bond rate be a good related index to follow?<<

Find out what the average maturity of your fund is and follow the closest Treasury rate. However, muni's sometimes vary in their spread with Treasuries for reasons related to their own market -- liquidity, credit risk, etc.
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