Municipal debt is down 2.58% so far this year, putting the asset class on course for its worst annual performance since 1994. In contrast, muni debt provided a return of 6.78% last year and 10.7% in 2011.
Detroit's fall into bankruptcy protection has had a major effect, with problems in Chicago, Illinois and Puerto Rico adding to the downward pressure. There's also been a broad sell-off in bond markets as investors have prepared for Fed tapering.
However, municipal debt tied to real-estate development, which is known as "dirt bonds" and is fairly risky, has had a decent year amid the recovery in the housing sector, rising 1.1% through December 23.