Municipal bond sectoral risk and information intermediation in uncertain times: Evidence from the Covid‐19 pandemic

Lang (Kate) Yang and Ruth Winecoff

Public Budgeting & Finance, 2022, vol. 42, issue 4, 34-53

Abstract: The municipal bond market is not homogeneous but consists of varying credits supporting different governmental activities. In this paper we discuss how sectors form and how they are differentially subject to market risks, using the Covid‐19 pandemic as a case study. The pandemic has disrupted all financial markets, particularly some municipal bond sectors supported by nongeneral obligation credits, such as health care, arts, and transportation. By comparing the sectors that face a greater increase in risk with others, we empirically examine the market uncertainty hypothesis that intermediation provides stronger certification value when sectoral risk increases. We find an increased use of insurance among high‐risk‐elevation bonds. Bond insurance, nevertheless, is not associated with larger reductions in offering yields in the high‐risk‐elevation sectors on average, but only for issuers consistently insuring all issuances. The yield difference between unrated and rated bonds expands more in the high‐risk‐elevation sectors; for an average unrated bond in such sectors, receiving any investment‐grade rating is associated with yield reductions.

Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://doi.org/10.1111/pbaf.12333

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:pbudge:v:42:y:2022:i:4:p:34-53

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0275-1100

Access Statistics for this article

Public Budgeting & Finance is currently edited by Philip Joyce and William Simonsen

More articles in Public Budgeting & Finance from Wiley Blackwell
Bibliographic data for series maintained by Wiley Content Delivery ().