Fears of widespread defaults in the municipal-bond market have spooked states and municipalities from issuing new debt, thus freezing volume in this once vibrant debt market, The Wall Street Journal reports.

Municipal-bond issuance for this year hit $31.5 billion as of March 4, its lowest level to date in 11 years.

After healthy borrowing in late 2010, local governments are now focusing on getting their fiscal houses in order, especially now that the market has taken a beating on default scares.

"The entire market has been amazed at the lack of volume," Christopher Mier, managing director at Loop Capital Markets, tells the Journal.

Nouriel Roubini

Fewer municipal bond issuances could delay many job-creating construction and other government-funded projects.

The municipal-bond market, long considered a safe investment venue, has taken a bruising since star analyst Meredith Whitney told "60 Minutes" late last year that public finances at the local level are so stretched that widespread defaults are likely, possibly totaling hundreds of billions of dollars.

Other respected Wall Street figures, including New York University economist Nouriel Roubini, have predicted troubles for the market. Some say, however, that while the municipal bond market is still not out of the woods, things are starting to look up.

State revenues are up as high as 7 percent from last year due either to tax increases or economic growth in general, says Mark Zandi, economist for Moody's Analytics.

"My sense is that the fiscal problems are at their worst now," Zandi says, according to USA Today.

"But investors can take a lot of solace in the cutting going on. Governors are very serious about balancing their budgets."

The chance of a state default? "Zero," Zandi tells the newspaper.