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Understanding the Recent Rise in Municipal Bond Yields

Huixin Bi (), Jacob Dice, Chaitri Gulati and W. Blake Marsh

Economic Bulletin, 2020, issue May 27, 2020, 4

Abstract: In late March, investors sold off municipal bonds at a rapid pace, depressing municipal bond prices and driving up their yields relative to U.S. Treasuries. We find that this initial investor run on the municipal bond market was likely due to increased liquidity demand rather than credit concerns, making the Federal Reserve’s early actions to relieve liquidity stress effective. Going forward, however, municipal bond prices will likely reflect increased credit concerns.

Keywords: Federal Reserve; Pandemic; Money Market Mutual Fund Liquidity Facility (MMLF); COVID-19; Municipal bond yields; Municipal bond market (search for similar items in EconPapers)
JEL-codes: G10 (search for similar items in EconPapers)
Date: 2020
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