(Bloomberg) -- BlackRock Inc. says the municipal-bond market’s rip-roaring rally is probably unsustainable. 

US state and local debt posted a historic return of more than 6% in November and another 0.7% already in the first part of December. Those types of gains are very unusual for the traditionally staid muni market where investors are accustomed to monthly returns less than 1%. 

After the rally that began in November, US state and local debt has gotten expensive compared to US Treasuries. BlackRock’s muni team said in a note that the “trajectory of the rally is likely unsustainable” and noted the high valuations. 

Still, the team led by Peter Hayes, James Schwartz, and Sean Carney still sees “opportunity” in the debt. “The asset class is entering a favorable seasonal period and will likely benefit from limited supply over the next few months,” they said in the note. “In addition, an improved outlook for fixed income should strengthen demand and promote more consistent inflows in 2024.”

The muni-Treasury ratio, a key gauge of relative value, has slid dramatically since November, signaling that munis are getting more expensive in comparison. The 10-year muni-Treasury ratio fell below 60% on Monday, the lowest point since mid-2021, indicating that municipal bonds are the richest compared to Treasuries in more than two years. 

Related: Muni Market Rally Drives Local Debt to Look Expensive Again

Others in the muni market are also taking note of the higher valuations. Barclays Plc strategists led by Mikhail Foux said in a Dec. 8 note that they “remain a bit cautious looking ahead to 2024.” 

The current valuations leave “little cushion” to absorb a surge in Treasury yields, the group said. They noted the firm’s rate strategists expect Treasury yields to be meaningfully higher next year.

“After such a strong performance, we think there is very little juice left,” they said. 

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