Understanding the Recent Rise in Municipal Bond Yields
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.
JEL Classification: G10;
File format is application/pdf
Description: Full text
Provider: Federal Reserve Bank of Kansas City
Part of Series: Economic Bulletin
Issue: May 27, 2020