Reply #63: Some investors fear collapse of municipal bonds across nation

[Demeter]

http://jacksonville.com/news/florida/2010-12-21/story/some-investors-fear-collapse-municipal-bonds-across-nation

Investors have fled municipal bonds in recent weeks, leading to rising fears about investments in state and local government debt and increasing the potential for higher rates for when governments look to borrow money.

But those involved in the bond market differ on how long the volatility will last and how much of an effect it might have on Florida, which has preserved its high credit rating throughout the economic downturn.

The market for municipal bonds, or munis, is pegged at around $2.8 trillion nationwide. It includes bonds sold for everything from sewer projects to college buildings to transportation infrastructure. Those investments have often been thought to be safer than other assets, largely because states cannot legally go bankrupt and because most governments do almost anything to avoid default.

No state has defaulted on its debts since the Great Depression, when Arkansas did so, and even in the midst of the current economic downturn, only three governments — Harrisburg, the state capital of Pennsylvania, a city in California and a transportation project in Las Vegas — have defaulted.