Winecoff – Municipal bond sectoral risk and information intermediation in uncertain times

October 5, 2022

Dr. Ruth Winecoff and Lang (Kate) Yang examined whether sectors that experience heightened risk due to the pandemic are more likely to rely on intermediation. They then directly tested the market uncertainty hypothesis of intermediation by examining whether the intermediaries are associated with a larger reduction in yields for high risk-elevation sectors than low risk-elevation sectors.

Abstract

The municipal bond market is not homogeneous but consists of varying credits supporting different governmental activities. In this paper we discuss how sectors form and how they are differentially subject to market risks, using the Covid-19 pandemic as a case study. The pandemic has disrupted all financial markets, particularly some municipal bond sectors supported by nongeneral obligation credits, such as health care, arts, and transportation. By comparing the sectors that face a greater increase in risk with others, we empirically examine the market uncertainty hypothesis that intermediation provides stronger certification value when sectoral risk increases. We find an increased use of insurance among high-risk-elevation bonds. Bond insurance, nevertheless, is not associated with larger reductions in offering yields in the high-risk-elevation sectors on average, but only for issuers consistently insuring all issuances. The yield difference between unrated and rated bonds expands more in the high-risk-elevation sectors; for an average unrated bond in such sectors, receiving any investment-grade rating is associated with yield reductions.

Read article

Recent Posts

Job Opportunity: Asst. Professor in Urban Planning

APPLY NOW AT https://jobs.rutgers.edu/postings/254087 The Edward J. Bloustein School of Planning and Public Policy (EJB) at Rutgers University-New Brunswick seeks to hire a full-time, tenure-track Assistant Professor for appointment beginning July 2026. Candidates...

“Work Trends RU” Podcast with Urban Institute’s Todd Greene

This week's guest on the Heldrich Center's Work Trends RU podcast is Todd Greene, Vice President of the Work, Education, and Labor Division at the Urban Institute and Executive Director of WorkRise. Todd is also Chair of the Heldrich Center's National Advisory Board....

NJ primary 2025: Results highlight weaker party machines

Several party-endorsed Assembly candidates lost. And the gubernatorial candidate endorsed by the county party lost in 10 counties The first state election with new ballots saw five party-endorsed Assembly candidates, an unusually large number, losing in last week’s...

Will Payne Maps NYC’s “Gourmet Gentrification” Trends

Mapping elite tastes along New York City’s gourmet gentrification frontier, 1990–2015 Abstract Urban researchers have long considered the spread of upscale amenities like restaurants, cafes and bars to be important symbolic indicators of gentrification, and recent...

Lessons from COVID-19: Students Can Thrive During Hardship

by Greg Bruno for Rutgers Today Rutgers researchers find that innovation, empathy and a commitment to diversity and inclusion are critical ingredients for educational attainment At Cedar Creek Elementary in Lacey Township, N.J., “Little Lion Helpers” serve as role...