NEW YORK - This time last year there were predictions swirling in the press about an approaching wave of municipal defaults. But the actual performance of the market has so far been in line with what Standard & Poor's Ratings Services expected: essentially stable, according to a report published Thursday: "State And Local Credit Quality Remained Resilient Last Year, Predictions Notwithstanding."

By the end of 2011, the $1.32 trillion S&P Municipal Bond Index had $13.6 billion or 1.03% of par value in default. Of this, through November, only 39 issues representing $805 million of the index went into default during 2011. And, only six defaults occurred among issues rated by Standard & Poor's Ratings Services, three of which occurred in the state and local sector.

These results were generally in line with what Standard & Poor's anticipated for the sector: low default rates, a potential softening of credit strength, and possible pockets of more severe credit deterioration.

"We recognize that state and local governments continue to operate in a stressful environment," said credit analyst Gabriel Petek. "Could this mean the warnings of an unusual level of credit deterioration were correct, just a bit early? We don't think so, and there are structural reasons to believe the state and local sector remains stable."

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