The largest exchange traded fund that invests in municipal bonds fell sharply Wednesday as President Obama held the first press conference of his second term and stood by pledges to raise taxes for wealthy Americans.

The $3.3 billion iShares S&P National AMT-Free Municipal Bond Fund (NYSEArca: MUB) fell 0.6% on Wednesday following a sharply rally in the wake of Obama’s election victory. [Muni Bond ETFs and the Election]

“Investors had been flocking to tax exempt munis since taxes are now expected to go up across the board, so it’s surprising to see the sharp reversal on a day in which the President held a press conference sharpening his stance on the tax issue,” Bespoke Investment Group said.

“Are investors all of a sudden expecting the tax hit to not be as bad, or are they simply selling any liquid assets they can find to raise cash? Perhaps there is a fear on the part of investors that any possible deal will include a combination of higher rates and limits on deductions,” the firm said on its blog. [Tax Debate Puts Dividend, Muni Bond ETFs in Focus]

Some high-profile investors such as Bill Gross, manager of PIMCO Total Return ETF (NYSEArca: BOND), have been loading up on municipal debt on expectations taxes will rise following Obama’s re-election. [Muni Bond ETFs: Yield, Safety and Tax Advantages]

“Muni bonds, which are tax-free, would be a valuable type of asset going forward,” Gross told Bloomberg.

Wealthier investors like muni bonds for their tax breaks, but there has been some talk recently of taking away the tax exemption.

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