When Meredith Whitney, an analyst who made her name with a scathing report on Citi’s financial position in October 2007, predicted hundreds of billions of dollars of defaults in the US municipal bond market, investors took notice. Between her call in December 2010 and August 2011, municipal mutual bond funds experienced net outflows of about $50bn.
This was despite defaults in the market, which today has about $3700bn of bonds outstanding, historically being rare. Moody’s counts just 71 between 1970 and 2011. This compares with 1784 in the US corporate market, which is double the size of the municipal one.
