The impact of the pandemic and the Fed’s muni program on Illinois muni yields

Bernhardt, Robert; D'Amico, Stefania; Palacios, Santiago I. Sordo

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The impact of the pandemic and the Fed’s muni program on Illinois muni yields

Abstract: We estimate a simple model in which variations in Illinois daily municipal bond yields are explained by high-frequency indicators summarizing economic and public health conditions in Illinois, as well as key changes in the Federal Reserve’s Municipal Liquidity Facility (or MLF). We find that the MLF appears to have reduced Illinois muni yields by more than 200 basis points.

Keywords: Municipal bonds; Illinois budget; municipal liquidity facility; state and local borrowing; central banks and their policies; asset pricing; trading volume; bond interest rates;

JEL Classification: E58; G12; H74;