The Two Worlds of Municipal Bonds: ARE Lower-Rated Bonds Punished More by Financial Crisis?

Jun Peng, Ken Kriz, Qiushi Wang

Research output: Contribution to journalArticlepeer-review

2 Scopus citations

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.

Original languageEnglish (US)
Pages (from-to)18-38
Number of pages21
JournalPublic Budgeting and Finance
Volume34
Issue number1
DOIs
StatePublished - Mar 1 2014

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics
  • Public Administration

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