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In a note at its Global Credit Portal, ratings agency Standard & Poor’s discusses the performance of state and local bonds during 2011 and believes the sector will remain stable in 2012. Pointing out the differences between private and public debt, S&P notes a unique aspect of public debt:

Policy distress can easily be confused with — although is sometimes linked to — fiscal distress. But the reality is that many governments can endure outright political dysfunction and still be nowhere near defaulting on their debt obligations.

S&P also points out that in 2011, just 1.03%, some $13.6 billion, of state and local bonds were in default out of a total of $1.32 trillion in bonds included in the S&P Municipal Index. Of that total, just $805 million went into default in 2011 through November.

New issues in 2011 were at their lowest level in a decade, and 31% of the issues were refinancings at lower interest rates. Local governments cut 515,000 jobs in 2011 as they struggled to get their budgets in balance.

S&P’s note is available here.