The following are excerpts from a Bloomberg article (link above)
Municipal bonds underperformed U.S. Treasuries in the first half as default speculation drove state and local government yields to the highest level relative to government bonds in 13 months.
Ten-year municipal bond yields rose to 100 percent of Treasuries for the first time since May 2009, from 80 percent six months ago, according to Municipal Market Advisors data.
Financial pressure on states and municipalities has built as revenue fell in the wake of the recession. More than two- thirds of states had a drop in revenue last quarter over the same period in 2009, the Nelson A. Rockefeller Institute of Government said this month. States will have confronted $296.6 billion of budget deficits from 2009 to 2012, the National Governors Association and National Association of State Budget Officers said.