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Abstract: 

This paper examines the performance of municipal bonds before and during the COVID-19 pandemic in 2020. Using Municipal Securities Rulemaking Board transaction data, it finds that municipal yields are positively related to U.S. Treasury yields prior to the pandemic but that following the pandemic, municipal yields are negatively related to U.S. Treasury yields and positively related to the Chicago Board Options Exchange Volatility Index. This is true only for tax-exempt customer trades. There is no relationship between U.S. Treasury yields following the pandemic for trades on taxable municipal bonds or tax-exempt dealer trades. The results clearly indicate a flight to U.S. Treasuries and away from municipal bonds and the stock market during the pandemic.q

Keywords: COVID-19 and municipal yields, COVID-19 and U.S Treasury yields, COVID-19 and VIX, taxable bonds, tax-exempt trades

Affiliations:  1: Penn State University; 2: Penn State University.