Recall Wall Street analyst Meredith Whitney, who sent a controversial jolt through the bond world when she forecast up 100 "sizable defaults" by local governments, amounting to hundreds of billions of dollars in a few years.

As Reuters notes, it hasn't turned out that way. Only 26 issues defaulted in the first half of the year, down from 60 in the first six months of 2010. The value of these defaults declined to $818.2 million in the first half of 2011 compared to about $2.8 billion in the first half of last year. For the second quarter, only 12 second-quarter muni defaults totaling $403 million were recorded, down from roughly $1.7 billion in the second quarter of 2010. For the sake of comparison, just 5 corporate debt issues defaulted in the second quarter, amounting to $1.8 billion. For the year, only 11 issues have defaulted.

To be sure, there's still plenty to worry about, and it's unclear if bond investors will reverse course and stream back into the asset class. Some of the dire predictions about the muni market were likely overblown. But then again, states and municipalities face some cringing budgetary realities. The economy is not providing the sort of wind at their backs that everyone was expecting at this point in the recovery. There could be a spate of defaults ahead. But at this point it doesn't loom as a tsunami.

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