Tax-exempt municipal bonds are heading to their worst quarterly performance in more than 16 years according to the Bank of America Merrill Lynch Municipal Master index.

The index, which accounts for price changes and interest income, found that municipal investments have lost 4.5 percent this quarter through Dec. 27, the poorest return since a 5.7 percent loss during the first three months of 1994.

As an extension grew less likely for the Build America Bond (BAB) program, part of President Barack Obama’s stimulus package that will end on Dec. 31, 30-year tax-free yields climbed 4.73 percent from Sept. 30 through Dec. 28, according to a Bloomberg Valuation Index.

“The primary reason for back-up is because of uncertainty that has resulted from the BABs scenario,” said Evan Rourke, portfolio manager with Boston-based Eaton Vance Corp., in an interview with Investment News. “That’s created temporary supply and demand imbalances, as Treasury yields have risen.”

Yields on top-rated 10-year tax-exempts were 3.1 percent on Dec. 28, up from 2.33 percent on Sept. 30, according to the Bloomberg Valuation Index. Ten-year U.S. Treasury yields for the same period increased 0.97 percent.