Pay close attention to the quality of the municipal bonds and municipal bond funds that you own or are considering buying.

That's the best advice for investors in this panicky 2011 in which fleeing the muni bond market is a national obsession. Calm down and remember that all municipal bonds are not alike.

"The municipal bonds most likely to default either aren't credit rated or have low credit ratings and provide non-essential services tied to a specific asset or project, such as a golf course," says Andy Kapyrin, director of research for Regent Atlantic Capital LLC, of Morristown, N.J., who isn't overly worried about credit defaults. "Essential service, general obligation municipal bonds are the least likely to default."

Investment strategist Meredith Whitney started the run last fall by predicting widespread defaults in government debt and a financial crisis. Adding to investor anxiety was the year-end expiration of the Build America Bonds program that was launched in 2009 to provide federal subsidies to municipalities issuing taxable bonds. At the same time, rising rates on Treasuries were deflating the relative attractiveness of tax-exempt munis.

Soon, billions of dollars were being yanked out of muni funds, and individual bonds also sold off. That put greater downward pressure on muni bond prices and added to the woes of the investors still holding them.

"We'll likely see continued weakening in the muni market because of negative headlines, but if a professional manager helps you to select them, or you go through a mutual fund, the likelihood of default is extremely small," says Ray Ferrara, certified financial planner and president of ProVise Management Group LLC, in Clearwater, Fla. "Because people have been exiting the muni market, the prices have dropped dramatically, and it's a great buying opportunity."

Acknowledging such market volatility, Vanguard Group withdrew documents it had filed with the Securities and Exchange Commission to launch three muni bond index funds and three exchange-traded funds. Even billionaire investor George Soros and JPMorgan Chase & Co. Chief Executive Jamie Dimon publicly expressed concern about budget pressures faced by state and municipal governments. The size of new issues being offered has also been smaller than usual.

To fight back, states are marketing their state-issued munis with aggressive campaigns to emphasize safety for average investors in the hope that average folks will "do the right thing." Individuals are not only receiving higher yields, but they are being given priority over institutional investors in buying them.

Since most municipal bond investors are conservative folks seeking tax-exempt opportunities in a market they expect to be saner than the stock market, all the excitement is a shock to the system. Many investors have kept virtually all of their savings in munis for years, and the daily reports of drastic government belt-tightening have added to the wall of worry.

Yet the municipal bond market has more than 40,000 issuers and offers plenty of choices. One way to build confidence is to stick with quality issues rated AA or higher. Keep in mind that long-term munis, like all long-term bonds, are the most vulnerable to interest-rate risk. In muni mutual funds, seek the lowest-fee funds because their managers won't find it necessary to swing for the fences to capture better yield.

"A lot of fuss about bond defaults is overblown because most of the big stories that made the news were projects that municipal bond researchers deemed uneconomical from the get-go," says Miriam Sjoblom, mutual fund analyst with Morningstar Inc., in Chicago. "They are not big surprises to most of the fund managers we talk with."

Here are two conservative Morningstar municipal bond fund recommendations that will help you sleep at night:

— The $4.3 billion Fidelity Intermediate Municipal Income Fund (FLTMX) has a strong track record and veteran managers. Its current yield is 3.44 percent, and its three-year annualized total return is 3.24 percent. Annual expense ratio is a low 0.41 percent.

Average credit quality of its bonds is A, and average duration 5.10 years. The fund's minimum initial investment is a little steep at $10,000.

— The $28.6 billion Vanguard Intermediate-Term Tax-Exempt Investor Fund (VWITX) has below-average credit risk and is highly diversified. Its current yield is 3.71 percent, and its three-year annualized total return is 3.08 percent. The low annual expense ratio of 0.20 percent is in the Vanguard tradition.

Average credit quality of its bonds is AA, and average duration is 5.59 years. The fund requires a $3,000 minimum initial investment.

"Our view of the muni bond market is that credit risk is very low, and, historically, muni bonds have had very low default rates," says Kapyrin. "It is possible they will have higher default rates going forward, but, if you think about the munis that have defaulted in the past, you can usually typecast them as those having no ratings at all."

In addition, munis tied to a specific asset, such as a turnpike, may not collect enough tolls to pay its bondholders, he says. But a general obligation bond issued by a state or a city can be funded through any of the issuer's revenue sources.

"Because the state or city can raise taxes or cut spending, it's pretty difficult to default on general obligation bonds," Kapyrin concludes.