What if a wave of US municipal defaults stresses credit markets?
A US muni-default cascade is a contained credit event: HY proxies widen but the modeled move is small because the muni market is largely insulated and tax-advantaged-held. Rhymes with Detroit's 2013 bankruptcy and Puerto Rico's 2016 default - severe locally, minimal systemic spillover. Transmission: muni insurers (the monolines) and the affected states' issuance costs are the pressure points. Skeptic: only escalate if defaults cluster across multiple large states and re-rate the whole asset class, otherwise this is an idiosyncratic spread-widening trade, not a macro risk-off.
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The butterfly cascade
How this trigger trickles across markets, left → right — the root shock, its first‑order moves, then the ripple effects. Drag any node; tap a market for its real price history.
Resolution timeline — how this probability is moving
Our model's odds (electric blue) over time vs the market's (Polymarket, amber), from the past toward the 1–3 years horizon. Each dot is a real macro event that nudged the probability — green pushed it up, red pushed it down. Tap a dot for the source. Loading the probability audit trail…
What it would mean
If this plays out, it is a risk-off shock. A US state/municipal default cascade stresses the muni and credit markets. The trigger decomposes into signed root‑shocks — Credit spreads ▲ — which propagate through our causal graph to the markets below.