The two worlds of municipal bonds: ARE lower-rated bonds punished more by financial crisis?
Peng, Jun Kriz, Kenneth A. Wang, Qiushi
Peng, Jun
Kriz, Kenneth A.
Wang, Qiushi
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2014-03-11
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Peng, J., Kriz, K. and Wang, Q. (2014), The Two Worlds of Municipal Bonds: Are Lower-Rated Bonds Punished More by Financial Crisis?. Public Budgeting & Finance, 34: 18-38. https://doi.org/10.1111/pbaf.12028
Abstract
Since the inception of the financial crisis in late 2008, the municipal bond market has undergone tremendous disruption. While some parts of the market are returning to normal, other parts are still under pressure in the aftermath of the financial crisis. By comparing the yields on municipal bonds and comparable corporate bonds, we find that since the crisis, municipal bonds of lower investment grade ratings, those rated A and BBB, are now paying a significantly higher risk premium than their corporate counterparts as seen in light of the traditional yield spread between these two bond markets. This higher risk premium has negative implications for the municipal bond market. Factors for this perception of increased risk in the municipal bond market are discussed and potential solutions are suggested. © 2014 Public Financial Publications, Inc.
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This is an open access article under the CC BY license.
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Wiley-Blackwell
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Public Budgeting and Finance
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15405850