After tumbling last year amid concern over Detroit's bankruptcy and Puerto Rico's deteriorating financial health, municipal bonds are poised to continue this year's early rally, as most states and cities are getting their finances in order, experts say.

"I'm more optimistic this year," Alan Schankel, a muni bond strategist at Janney Montgomery Scott, told The New York Times. "I think the rising-rate environment will continue, although not dramatically. I think municipals will do better than other fixed-income investments."

While municipal credit downgrades have topped upgrades for the last several years, "I think that will reverse toward the end of the year," he stated. State and local governments have cut spending since the financial crisis.

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Meanwhile, high-income earners were hit with several tax increases last year, including a 3.8 percent levy on investment income. Those hikes will make the wealthy "realize how valuable the tax-free status of municipal bond income is," Schankel explained.

Citigroup analysts also sound a bullish note for munis. "Most state and local governments will continue to take the steps needed to balance available revenues with needed expenditures, minimizing the magnitude of actual payment defaults," they wrote in a commentary obtained by The Times.

The Barclays Capital Municipal Bond Index has gained 2.1 percent so far this year. "Even with the more recent financial crisis in Puerto Rico hanging over the market, prices have found strength," wrote Michael Kahn of Barron's.

"Municipal bonds just might be the sleeper sector for the coming year."

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