The largest municipal bankruptcy in U.S. history wasn't unexpected, but last week's Chapter 9 filing by the city of Detroit has added to the already high level of anxiety shared by municipal bond investors. According to Morningstar, investors pulled nearly $20 billion out of municipal bond funds in the four months ending in June. Closely watched issues include how Detroit's unlimited general obligation bonds, which have traditionally had priority status, will be treated in the bankruptcy process.

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