The Impact Of The Pandemic And The Feds Muni Program On Illinois Muni Yields
We estimate a simple model in which variations in Illinois daily municipal bond yields are explained by high-frequency indicators summarizing economic and public health conditions in Illinois, as well as key changes in the Federal Reserve’s Municipal Liquidity Facility (or MLF). We find that the MLF appears to have reduced Illinois muni yields by more than 200 basis points.
The Covid-19 pandemic put finances of states and municipalities across the country under severe stress. This stress derived both from reductions in revenues associated with lower economic activity and increased demands on public health and social safety measures. State and local governments have received substantial federal support through the CARES Act. They have arguably also benefited from the establishment of the Federal Reserve’s Municipal Liquidity Facility (MLF) - announced on April 9 to address the liquidity needs of municipal authorities and support market functioning. At the time of writing, Covid-19 cases, hospitalizations, and deaths are reaching record levels across the country, particularly in the Upper Midwest. Yet, additional federal assistance remains uncertain, and the MLF is scheduled to expire on December 31, 2020. This