"People have generally taken that for granted over the past few years. We will continue to see investors leaking out of the market because it is really labor intensive to manage a municipal market portfolio," said Fabian

Goode added that the sell-off in municipal bonds has created an opportunity for investors.

"Even though you have this big sell off, if you hold onto your bonds you have not lost any money. It is psychology," said Goode.

--Written by Maria Woehr in New York.

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