Trading in contracts that protect against default on US state debt, known as municipal bonds, reflects rising worries about US state debt, an unwelcome development as world markets are trying to recover from the European sovereign crisis.

This chart, from Markit, shows the widening trend in the index of municipal bond credit default swaps. Those contracts show the rising cost of insurance against default in US state bonds, and they have nearly doubled since the end of April. The MCDX North America index, which tracks the price for protection on US municipal bonds, has widened from 115bp to 209bp in the period between April 20 and June 11 this year.