The municipal bond market was in great shape prior to the COVID-19 outbreak. After the passage of the Tax Cuts and Jobs Act in 2017, the combination of strong investor demand for yield and a limited supply of tax-exempt issues led to a compression in quality and sector spreads. Of course, the COVID-19 outbreak led to a sudden disruption of financial markets, including muni markets.
COVID-19’s Impact on Munis
The U.S. COVID-19 outbreak in March sparked a rapid sell-off across financial assets. In the municipal bond market, $40 billion in redemptions in just three weeks caused a severe liquidity crisis, particularly as leveraged funds were forced to sell. Quality and sector spreads also widened as investors sought out safe-haven assets, such as general obligation bonds.
dividend.com
Oct 28, 2020