Buffett's Move Raises a Red Flag

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A decision by Warren Buffett's Berkshire Hathaway Inc. to end a large wager on the municipal-bond market is deepening questions from some investors about the risks of buying debt issued by cities, states and other public entities.

The Omaha, Neb., company recently terminated credit-default swaps insuring $8.25 billion of municipal debt. The termination, disclosed in a quarterly filing with regulators this month, ended five years early a bullish bet that Mr. Buffett made before the financial crisis that more than a dozen U.S. states would keep paying their bills on time, according to a person familiar with the transaction.