A Time Series Model of Seasonality in the Municipal Bond Market

Robert A. Greer

Municipal Finance Journal, 2015, vol. 36, issue 2, 1 - 23

Abstract: This study examines seasonal trends in the municipal bond market using ARIMA and ARIMAX models. The findings show higher average yields in the spring months and lower average yields in the winter months when compared to summer months. To model the municipal bond market, an index limited to general obligation bonds is used to test for both year-over-year trends and seasonal patterns. The model is developed using the Box-Jenkins method of identifying a seasonally adjusted ARIMA, and then a multivariate seasonally adjusted ARIMA model is used to test for specific month effects. Several possible explanations for seasonality are explored using a vector autoregressive model. Results show that the amount of municipal bonds approved in elections and the S&P 500 monthly earning yield predict the Bond Buyer 20-Bond General Obligation Index. These findings have implications for municipal bond investors as well as municipal bond issuers and show that future research should account for overall trends as well as the seasonal patterns in general obligation bond yields.

Date: 2015
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