Municipal Markets and the Municipal Liquidity Facility

Municipal bond markets experienced a significant amount of strain in response to the COVID-19 crisis, creating liquidity and credit concerns among market participants. During economic shutdown resulting from pandemic, income tax revenues were deferred sales decreased beginning spring 2020, while cost borrowing significantly increased for municipal issuers. To aid needs, Federal Reserve implemented Liquidity Facility (MLF) on April 9, 2020. In this analysis we describe conditions as they evolved during document by distress with focus MLF, conduct an event study examine MLF-related impacts index yield spreads. We detail two case studies that compare spreads issuers had sold debt MLF find secondary transactions these notably reduced after public announcement intent sell MLF. Our results present additional evidence positive impact functioning pandemic period.