Yes this is likely part of the reason but in general the discount arose due to the fed tapering issue since the discounts on all fixed income have widened toget

Yes this is likely part of the reason but in general the discount arose due to the fed tapering issue since the discounts on all fixed income have widened together since. Regardless, a particular muni fund will be exposed to thousands of municipalities, so default risk is essentially diversified away, particularly if you invest in a managed fund where the fund managers have a track record of understanding the municipalities they invest in. Unless you are a devout believer in the efficient market, one could argue that the discount could in part be due to irrational investors selling their munis to buy equities in a media environment where scary headlines about Detroit going bankrupt are on CNN and Facebook stock doubles since it's IPO.