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RWP 20-19, December 2020; updated January 2022

We examine how policy interventions during the COVID pandemic impacted municipal bond market pricing. Focusing on narrow trading windows, we fi nd that announcements of fiscal and direct monetary policy interventions reduced liquidity risk concerns but did not immediately ease credit concerns. Using rolling-window regressions, we fi nd that policy interventions eased credit concerns for short-term bonds over time, while longer-term bond spreads show increased credit risks. The credit risk shift from short- to long-term bonds reflects policy designs that bene fited short-term bonds more, as well as changing investor expectations on state and local government budgets due to the pandemic's persistence.

JEL Classification: E52, E62, G12, H74

Article Citation

  • Bi, Huixin, and W. Blake Marsh. 2020. “What Did Policy Interventions Fix in the Municipal Bond Market - Liquidity or Credit?” Federal Reserve Bank of Kansas City, Research Working Paper no. 20-19, December. Available at External Link


Huixin Bi

Research and Policy Officer

Huixin Bi is a Research and Policy Officer in the Economic Research Department of the Federal Reserve Bank of Kansas City. Previously, Ms. Bi served as an economist at the Bank o…

W. Blake Marsh

Senior Economist

Blake Marsh is a senior economist at the Federal Reserve Bank of Kansas City. He joined the Banking Research department in July 2016. His research areas are commercial bank regul…