THE DAILY CHART: America's municipal waste

Growing concerns for the future of America's cities and states resulted in the US municipal bond market booking its worst month since the collapse of Lehman Brothers. Over the next 18 months America's states need to fill $US114 billion in budget shortfalls and while Washington has always found willing lenders despite its trillions of dollars of debt, lower levels of government haven't always been met with the same benevolence. The recent tightening of 'muni' bonds can be put down to a few factors, but the one at the forefront of investors' minds is the looming expiry of the Obama administration's Build America Bonds program.

The program, which subsidises the borrowing costs for state and local governments, was introduced as part of the Obama administration's stimulus measures and there were hopes that the initiative would be extended – hopes which were dashed in November. The states and cities have reacted by trying to raise as much as possible while the subsidy is in place, but that's flooded the market at a time when concerns for the US Federal Reserve's quantitative easing program have pushed up US Treasury bond yields. Without access to cheaper sources of debt America's city and state governments will have to slash more out of their budgets – just as the US employment numbers are looking shaky/shakier – or risk defaulting on their obligations.