Journal Article

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.

Keywords: Municipal bond market; Municipal bond yields; Money Market Mutual Fund Liquidity Facility (MMLF); Federal Reserve; COVID-19; Pandemic;

JEL Classification: G10;

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Bibliographic Information

Provider: Federal Reserve Bank of Kansas City

Part of Series: Economic Bulletin

Issue: May 27, 2020

Pages: 4