Municipal and state bond markets are under threat, the New York Times reminds us again this morning.

California could collapse! New York is in trouble! Illinois just got downgraded!

Everyone's freaking out... except investors.

Why not?

Well, there's the presumption of a federal bailout (can you imagine Obama watching all his economic progress undermined by collapsing states?).

They also have the advantage of being tax-free, which can be a useful shield when government taxes increase. In other words, they are spiraling higher: debt fears stoke tax fears stoking muni bond buying.

This chart from Bespoke tells it all

And James Altucher of Formula Capital says there is nothing to fear from municipal bond defaults for the time being.