Additionally, Alwine points out that inflation is closer to bottoming. The low inflation makes real yields, or yields adjusted after accounting for inflation, more attractive.

However, there are some caveats on a state-to-state basis. For example, New Jersey’s pensions are underfunded, and Chicago’s debt was recently downgraded to below investment grade, adding to concerns over general obligation bonds that are backed by an issuer’s general revenue from sources like taxes. VTEB and MUB, though, only have about a 4.5% tilt toward New Jersey and only include investment-grade muni debt.

Alternatively, investors can take a look at the Deutsche X-Trackers Municipal Infrastructure Revenue Bond Fund (NYSEArca: RVNU), which seeks to reduce exposure to public pension risk, not avoid or eliminate it, by focusing solely on bonds that fund, state and local infrastructure projects such as water and sewer systems, public power systems, toll roads, bridges, tunnels, and many other public use projects. The interest and principal repayments are generated from dedicated revenue sources as opposed to general obligation bonds that have come under greater scrutiny. RVNU has a 3.08% 12-month yield. [Alternative Income ETF Strategies for a Shifting Environment]

For more information on the munis market, visit our municipal bonds category.

Max Chen contributed to this article.