I’ll throw in my 2 cents: I’ve stayed away from munis because I think the housing contagion has a real likelihood of spreading to CA municipalities since so much of their revenue is property tax/sales tax dependent. I also think there will be a number of OC style casualties as losses from the excesses of the last few years are fully realized.
That’s the pessimistic side: On the optimistic side, municipalities often have the power to tax, cut spending, etc., and those powers can be used to offset a multitude of sins.
Remember, though, that it isn’t only the risk that they won’t pay. It’s the risk that their will be risk that they won’t pay that can put the bond prices at risk (as default risk increases, bond yields will rise and prices will fall).
Long story short, I’m staying away from them right now, but certainly they are safer than many other asset classes
