Economic fundamentals, policy responses, and state-level municipal bond sensitivity to COVID-19 prevalence

Babatunde O. Odusami and Iqbal Mansur

The North American Journal of Economics and Finance, 2022, vol. 61, issue C

Abstract: This paper conducts a state-by-state analysis of the financial impact of the COVID-19 pandemic on the U.S. municipal bond market. Using panel regressions and state-by-state regressions, we find that the prevalence rates of the COVID-19 virus negatively impacted the aggregate performance of municipal bonds. The study also explored whether the disparities in the economic fundamentals of U.S. states, as well as the COVID-19 mitigation policies employed by each state, can explain the sensitivity of the state’s municipal bond to its COVID-19 prevalence rates. States with more desirable economic fundamentals and robust COVID-19 mitigation policies appeared to have higher COVID-19 sensitivities than states that do not. This finding may be due to a baseline effect, in which the higher levels of economic activities in these states also make them more susceptible to the deleterious effects of the stronger mitigation policies enacted by them.

Keywords: Municipal Bonds; United States; COVID-19 (search for similar items in EconPapers)
JEL-codes: G10 (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:61:y:2022:i:c:s1062940822000481

DOI: 10.1016/j.najef.2022.101693

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