COVID-Induced Migration and Municipal Bonds

Migration patterns in the United States changed dramatically during the COVID-19 pandemic. We find that COVID-induced migration predicts municipal bond yield spreads, particularly for lower-rated bonds and areas experiencing larger than usual population outflows. Analyzing this effect across the term structure suggests both short- and long-run effects, with the short-run effect leading adversely hit areas to issue fewer bonds during the latter half of 2020. We find little evidence that pre-COVID trends in yield spreads relate to an area’s COVID-induced migration shock, and no evidence that abnormal migration predicts yield spreads prior to the COVID-19 pandemic. Our findings suggest that market participants believe that COVID period migration captures a permanent, economically relevant, phenomenon that poses downside risk to the future of some municipal economies