However, Morgan Stanley analysts predict there is a 30% chance muni bonds could lose their tax exemption, Barron’s reports.

“The ‘fiscal cliff’ compromise answered the question as to whether interest on municipal bonds would be taxed in 2013. Municipal bonds avoided all the various proposals that had been put forth to eliminate or reduce the level of their tax exemption. In fact, the increase in the top marginal income tax rate to 39.6% from 35.0% may make municipal bonds even more attractive to some high income investors,” says Morningstar’s Strauts.

“After a sell-off in December the municipal-bond market has rallied as investors have shaken off concerns about potential changes to muni bonds’ tax treatment in the near term,” he added. “But the long-term tax status of municipal bonds is far from resolved in Congress.”

MUB holds assets of $3.6 billion and charges an expense ratio of 0.25%. The ETF pays a distribution yield of 3.08%, according to manager BlackRock.

iShares National AMT-Free Muni Bond ETF

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