How the new fed municipal bond facility capped municipal-treasury yield spreads in the Covid-19 recession

IF 2.6 3区 经济学 Q1 ECONOMICS
Michael D. Bordo , John V. Duca
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引用次数: 14

Abstract

For over two centuries, the municipal (muni) bond market has been a source of systemic risk, which returned early in the Covid-19 downturn when borrowing from securities markets became costly for many private and public entities, and some found it difficult to borrow at all. Indeed, just before the Fed announced its unprecedented intervention into the muni market, spreads of muni over Treasury yields rose in line with the unemployment rate and appeared headed to levels not seen since the Great Depression, when real municipal gross investment plunged 35 percent below 1929 levels. To prevent such a calamity, the Fed created the Municipal Liquidity Facility (MLF) to purchase newly issued, (near) investment-grade state and local government bonds at ratings-based interest rate spreads over the safe OIS benchmark yield. In general, these spreads were initially about 100 basis points above average spreads under more normal market conditions and were later lowered by 50 basis points in August 2020. Despite a modest take-up, our study documents the MLF prevented muni spreads from rising much above those margins (plus a modest 10 basis point fee) and limited the extent to which interest rate spreads could have amplified the impact of the Covid pandemic. To establish the MLF the Fed needed Treasury indemnification against default losses. There were concerns about whether the creation of the MLF could induce moral hazard among borrowers and could undermine the efficiency of the bond market if the facility had lasted too long. Partly for this reason and because the muni market had settled down by yearend 2020, the Treasury terminated the MLF at that time. Future assessments of these downside aspects will help answer the question whether the program's benefits addressed here exceeded its costs.

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在2019冠状病毒病(Covid-19)衰退期间,新的美联储市政债券安排如何限制市政债券与国债的收益率差
两个多世纪以来,市政债券市场一直是系统性风险的来源,这种风险在新冠肺炎经济低迷早期卷土重来,当时从证券市场借款对许多私人和公共实体来说成本高昂,一些人发现根本难以借款。事实上,就在美联储宣布对市政债券市场进行前所未有的干预之前,市政债券对美国国债收益率的利差随着失业率的上升而上升,并似乎达到了大萧条以来的最高水平,当时实际市政总投资比1929年的水平下降了35%。为了防止这样的灾难,美联储设立了市政流动性基金(MLF),以基于评级的利率差在安全的OIS基准收益率之上购买新发行的(接近)投资级州和地方政府债券。总的来说,在更正常的市场条件下,这些利差最初比平均利差高出约100个基点,后来在2020年8月下调了50个基点。尽管接受率不高,但我们的研究文件显示,MLF阻止了市政息差远高于这些息差(加上10个基点的适度费用),并限制了利率息差可能放大新冠肺炎疫情影响的程度。为了建立MLF,美联储需要财政部对违约损失进行赔偿。有人担心,如果MLF持续时间过长,MLF的设立是否会在借款人中引发道德风险,并可能损害债券市场的效率。部分原因是,由于穆尼市场在2020年底前已经稳定下来,财政部当时终止了MLF。未来对这些不利方面的评估将有助于回答该计划的收益是否超过成本的问题。
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来源期刊
CiteScore
5.10
自引率
6.90%
发文量
36
期刊介绍: The Journal of the Japanese and International Economies publishes original reports of research devoted to academic analyses of the Japanese economy and its interdependence on other national economies. The Journal also features articles that present related theoretical, empirical, and comparative analyses with their policy implications. Book reviews are also published.
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