Systemic risk from Detroit bankruptcy played down Detroit's bankruptcy this month is unlikely to produce global contagion effects, even if other US areas fall into financial trouble, according to data showing foreign institutions have bought less than 1 per cent of US municipal bonds. The US city's financial difficulties last week raised concerns about unpredictable knock-on effects given the size of the diverse US municipal bond, or "munis," market, which is little understood outside the US, and the potential for further bankruptcies in other distressed regions. Thomson Reuters figures, however, show that at $7.6bn, holdings by foreign institutional buyers account for just 0.63 per cent of the of US munis on its eMAXX database. The market for US municipal debt is driven by significant tax advantages for local investors. As a result bonds are largely held locally. Their limited foreign ownership suggests there is scant chance of recent market stresses having similar effects as the US subprime mortgage crisis in 2007. The subprime crisis "had a direct read-across into the US real economy because of the exposure of the global banking sector" and led to a policy response, said Steven Major, head of fixed income research at HSBC. On the basis that the banks are not so exposed, in the case of Detroit's bankruptcy it is difficult to see where the systemic risk will come from. Many investors" holdings are also insured, which should also limit the fallout from Detroit's bankruptcy. However, the data may not capture the full extent of foreign ownership of munis -although Thomson Reuters believes its database offers a good and reliable representation. It shows barely any holdings by institutional buyers such as asset managers and insurance companies in Belgium and only $16m by those in France. However Dexia, the Franco-Belgian bank, last week disclosed it had an exposure to Detroit's debt restructuring amounting to $305m and announced a €59m charge. Dexia has given few details about what those figures covered. Possible explanations are that Dexia's holdings were not registered on the eMAXX database or it held the bonds outside Belgium and France. According to Thomson Reuters, some $5.5bn of US munis are held by Canadian institutional buyers - by far the largest chunk held outside the US. A further $1.1bn is accounted for by Bermuda. Within Europe, the largest amount - $675m - was held by UK institutional buyers. US munis were widely considered low risk investments. But Detroit's bankruptcy could lead to investors in future demanding a higher risk premium, possibly increasing funding costs for other US cities. "General obligation" municipal bonds, are backed by pledges to raise taxes to cover interest and repayments.