Municipal Finance During the COVID-19 Pandemic: Evidence from Government and Federal Reserve Interventions

71 Pages Posted: 29 Jun 2020 Last revised: 25 Jan 2021

See all articles by Tao Li

Tao Li

University of Florida - Department of Finance, Insurance and Real Estate

Jing Lu

University of Florida, Warrington College of Business Administration, Students

Date Written: June 28, 2020

Abstract

We study the functioning of the municipal bond market during the COVID-19 pandemic. The average offering yield increases while the number of new issues drops when county-level COVID-19 case and death counts rise. Exploiting the differential timing of local policy actions, we find that emergency declarations lead to a 69 basis-point increase in offering yields and a significant drop in new issuance. Investors shun transportation and dedicated tax bonds or bonds issued in fiscally unhealthy states. The Federal Reserve's unprecedented interventions through two municipal liquidity facilities have calmed the market. The reopening of local economies has led to a significant drop in offering yields.

Keywords: Municipal bond, New issuance, COVID-19, Local mitigating policies, Federal Reserve interventions, Municipal Liquidity Facility

JEL Classification: G14, G18, G24, H74

Suggested Citation

Li, Tao and Lu, Jing, Municipal Finance During the COVID-19 Pandemic: Evidence from Government and Federal Reserve Interventions (June 28, 2020). Available at SSRN: https://ssrn.com/abstract=3637636 or http://dx.doi.org/10.2139/ssrn.3637636

Tao Li (Contact Author)

University of Florida - Department of Finance, Insurance and Real Estate ( email )

Warrington College of Business
Gainesville, FL 32611
United States

HOME PAGE: http://warrington.ufl.edu/contact/profile.asp?WEBID=7628

Jing Lu

University of Florida, Warrington College of Business Administration, Students ( email )

Gainesville, FL
United States

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