Requantizing the government channel

Amid the recent selloff in the municipal-bond market, investors are increasingly differentiating between state and local governments with strong finances and those facing big fiscal woes.

That trend could have significant implications for holders of bonds issued by weaker state and local governments, some of which are already paying higher interest rates and have seen the prices of their bonds decline in value.

WSJ

Continuing:

The hardest-hit borrowers generally have been those seen as in the most dire fiscal shape. The market typically punishes creditors perceived as riskier by demanding higher yields. Some analysts anticipate yields paid by the most troubled municipal borrowers will only continue to widen next year in comparison with the broader market.

My take:

Bond holders reduce transaction costs by categorizing and grouping.  The government bond market approaches the debt horizon, time and space dilates, the rank drops, a smaller set of bounded functions describes the market.  Government is entangled, and the process requants from the federal level to the municipalities.  Some municipalities survive, others go under state management.  Enentually we end if with one huge PowWow in Congress, and even then we move up to chain to a Brent Woods PowWow.

When that fails, bond holders begin synchronizing to Sun Spots.  This process stops when we have a general revolt of the consumer.