WASHINGTON — Municipal market participants are increasingly anxious that a year-end “fiscal cliff” deal between the Obama administration and Congress will include some type of cap on tax exemption, perhaps even the 28% cap proposed by President Obama.

Many muni investors may not have appreciated the risk posed by proposals to cap the value of tax exemption until recent media reports and an investor call led by Citi last week significantly increased awareness of the issue, Matt Fabian, managing director at Municipal Market Advisors, wrote in an outlook report on Monday.

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