If you've been to Fitch for a credit rating, you may find your bonds experiencing grade inflation.

Based on a recent study that the credit-rating agency did on default rates in the municipal bond sector, Fitch found that general obligation and tax-backed bonds, among others, were more than a percentage point less risky than muni bonds overall. More precisely, where the default rate on all municipal bond debt is 1.5 percent, the study found that the lower-risk sectors are at a mere 0.01 percent.

So Fitch announced last month that it has upgraded $17.5 billion in local government GOs and tax- and lease-backed bonds. Among the GO- debt winners are Hillsborough County, Florida, which got a boost from AA- to AA and Philadelphia, which rose from BBB+ to A-.

Upgrades were not based solely on the new assessment of historical default rates, however. They are also supported, says Katherine McManus, Fitch's managing director, "by systematic improvements": issuers' implementation of accrual accounting, an increase in state support and oversight, and the ascendancy of fuller disclosure.

But not everything is rosy. An annual Standard & Poor's review of state ratings found that despite the positive fund-balance trend of the past three years, most states' credit ratings have not moved up to reflect those nicely full coffers. That trend, S&P predicts, is likely to continue into the next year. The reason, according to David Hitchcock, director of S&P's Public Finance Department, is that "tax cuts that many states have enacted have not been offset totally by changes in spending."