Fears over ratings downgrades for two more bond insurers have dealt further blows to the $2,660bn US municipal bond market, which is already reeling under the strains of the credit crunch.

The loss of top-notch triple A ratings for the two leading bond insurers, Ambac and MBIA, has already hit prices of the muni bonds they had guaranteed. But this week, Moody’s Investors Service surprised the market with a warning that it may downgrade Assured Guaranty and Financial Security Assurance, the last remaining legacy bond insurers with triple A ratings.