(Bloomberg News) Defaults in the $3.7 trillion municipal-bond market this year will again prove Meredith Whitney wrong, falling short of the "hundreds of billions of dollars worth" the banking analyst predicted for 2011.

Debt on which payments are missed may rise as much as 15 percent to $2 billion in 2012, according to John Hallacy, a Bank of America Merrill Lynch strategist, as a full recovery from the longest recession since the 1930s eludes some states and cities.

"Given the remaining effects of the slowdown in the economy, you could have a marginal increase in defaults," said Hallacy. "I don't see it being a spike."

Whitney, who gained prominence after predicting correctly in 2007 that Citigroup Inc. would cut its dividend, told the CBS Corp. television program "60 Minutes" in December 2010 that there may be 50 to 100 "sizeable" defaults in 2011.

The year was indeed marked by the largest municipal bankruptcy filing in U.S. history. Jefferson County, Alabama, sought court protection after struggling with $3.1 billion of sewer-system debt. Harrisburg, Pennsylvania, also filed because of burdensome incinerator bonds. A federal judge rejected the move, ruling it wasn't authorized.

Defaults involving missed payments totaled about $1.7 billion of face value in 2011 by Hallacy's estimate. The total was $2.6 billion according to Matt Fabian, a managing director at Concord, Massachusetts-based Municipal Market Advisors, excluding tax-exempt debt in AMR Corp.'s bankruptcy.

Wide Margin

"Meredith Whitney blew her call by a great margin, but they still could go up," said Richard Larkin, director of credit analysis at Herbert J. Sims & Co. in Iselin, New Jersey.

New York-based Whitney didn't return a telephone call seeking comment.

Absent widespread defaults, munis earned more than stocks, Treasuries and commodities last year as state and local governments cut spending and tax revenue rose for eight straight quarters to Sept. 30, the longest string of gains since 2008, the U.S. Census Bureau said Dec. 20.