Citigroup has been forced to launch a $1bn bail-out of six internal hedge funds hit by the turmoil in municipal bonds – the latest victims of the turbulence in the once-safe market for local authorities’ debt.

The move to inject $600m, and pledge $400m more, to shore up the funds, which had capital of $2bn and total assets of about $15bn, is another sign of Citigroup’s difficulties in dealing with the credit squeeze.