Coming months may be stressful for some municipalities but Moody's Investor Service does not expect any state governments to default on Moody's-rated debt in 2011.
The ratings agency expects only a few local governments to default on debt obligations this year.
In a new report released Thursday, Moody's concluded that most U.S. municipalities are well-equipped to ride out tough times.
The press release states that municipal bond issuers facing the most impact if market conditions worsen are those that rely on bond issuance to finance deficits and seasonal cash flow needs.
"These include some of the highest profile municipal issuers, such as the state of Illinois, California and Arizona," according to the press release.
On Thursday, Bloomberg.com reported on Moody's new research. In "Moody's report says no state will default on rated bond debt this year," reporter Martin Z. Braun noted that the municipal bond market has been shaken recently by fears of default -- particularly after high-profile banking analyst Meredith Whitney predicted up to 100 municipal bond defaults this year.
Intrepid investors may be able to benefit from the perception of heightened risk, however, by investing in localities flush with cash.
Read more about municipal bonds in Bankrate's interest rate forecast coming next week.