CREDIT RISK, CREDIT RATINGS, AND MUNICIPAL BOND YIELDS: A PANEL           STUDY

We investigate the effect of Eurosystem Asset Purchase Programmes (APP) on the monthly yields of 10-year sovereign bonds for 11 euro area sovereigns during January-December 2020. The analysis is based on time-varying coefficient methods applied to monthly panel data covering the period 2004m09 to 2020m12. During 2020 APP contributed to an average decline in yields estimated in the range of 58-76 bps. In December 2020 the effect per EUR trillion ranged between 34 bps in Germany and 159 bps in Greece. Stronger effects generally display diminishing returns. Our findings suggest that a sharp decline in the size of the APP in the aftermath of the COVID-19 crisis could lead to very sharp increases in bond yields, particularly in peripheral countries. The analysis additionally reveals a differential response to global risks between core and peripheral countries, with the former enjoying safe-haven benefits. Markets’ perceptions of risk are found to be significantly affected by credit ratings, which is in line with recent evidence based on constant parameter methods.

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Abstract--Municipal Bond Credit Ratings: A Suggested Methodology

Journal of Financial and Quantitative Analysis ◽

10.2307/2329690 ◽

1974 ◽

Vol 9 (5) ◽

pp. 897 ◽

Cited By ~ 1

Author(s):

Ronald Forbes ◽

Alan Frankle ◽

Arthur Hierl

Keyword(s):

Credit Ratings ◽

Municipal Bond

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Municipal Bond Ratings: Are They Worthwhile for Rural Governments?

Journal of the Northeastern Agricultural Economics Council ◽

10.1017/s0163548400003198 ◽

1982 ◽

Vol 11 (1) ◽

pp. 67-73

Author(s):

Patrick J. Sullivan

Keyword(s):

Credit Ratings ◽

Municipal Bond ◽

Bond Ratings ◽

General Obligation Bonds ◽

General Obligation

Rural governments in the Northeast purchased credit ratinqs for a high percentage of their general obligation bonds sold in 1977. This paper examines the effect credit ratings had on the interest cost of GO bonds sold by nonmetro governments in the Northeast. The results suggest that the decision to purchase a rating may be a costly error under certain circumstances.

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Heterogeneous Taxes and Limited Risk Sharing: Evidence from Municipal Bonds

Review of Financial Studies ◽

10.1093/rfs/hhaa028 ◽

2020 ◽

Vol 34 (1) ◽

pp. 509-568 ◽

Cited By ~ 1

Author(s):

Tania Babina ◽

Chotibhak Jotikasthira ◽

Christian Lundblad ◽

Tarun Ramadorai

Keyword(s):

Risk Sharing ◽

Demand Curve ◽

Aggregate Demand ◽

Asset Returns ◽

Idiosyncratic Risk ◽

State Ownership ◽

Municipal Bonds ◽

Municipal Bond ◽

Bond Yields ◽

State Variation

Abstract We evaluate the impacts of tax policy on asset returns using the U.S. municipal bond market. In theory, tax-induced ownership segmentation limits risk sharing, creating downward-sloping regions of the aggregate demand curve for the asset. In the data, cross-state variation in tax privilege policies predicts differences in in-state ownership of local municipal bonds; the policies create incentives for concentrated local ownership. High tax privilege states have muni bond yields that are more sensitive to variations in supply and local idiosyncratic risk. The effects are stronger when local investors face correlated background risk and/or diminishing marginal nonpecuniary benefits from holding local assets.

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