US municipalities wary of two-way CSAa

European sovereigns are tentatively moving towards two-way credit support annex agreements, but US municipalities are proving to be much more resistant to posting collateral on derivatives trades. The result is a credit and funding headache for their dealers. By Peter Madigan

The European sovereign debt crisis has been the major focus for bond investors and risk managers for much of this year, but another, less high-profile fiscal crisis is playing out on the other side of the Atlantic. US states are struggling to cope with whopping budget deficits – and with the domestic economy showing signs of a slowdown in recent months, things are unlikely to get better in the short term.

According to the Fiscal Survey of States, published in June by the Association of State