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New Empirical Evidence on Factors Influencing the Yield on High-Grade Municipal Bonds

Author

Listed:
  • Barth, James R.

    (Auburn University, Alabama, U.S.A.)

  • Cebula, Richard J.

    (University of Tennessee Knoxville, Tennessee, U.S.A.)

  • Nguyen, Nguyen T.H.

    (Minnesota State University Mankato, Minnesota, U.S.A.)

Abstract

We investigate the impact of federal budget deficits and other factors on the ex-post and ex-ante real yields on high-grade municipal bonds. The estimation results reveal that both yields increase with the real yield on 30-year Moody’s Aaa-rated bonds and provisions in the Community Reinvestment Act but decrease with net capital inflows, the real GDP growth rate, and the average effective federal income tax rate. Most importantly, both yields are increasing functions of the federal budget deficit. These results support limiting the size of federal budget deficits to avoid the excessive crowding out of private investment spending.

Suggested Citation

  • Barth, James R. & Cebula, Richard J. & Nguyen, Nguyen T.H., 2023. "New Empirical Evidence on Factors Influencing the Yield on High-Grade Municipal Bonds," American Business Review, Pompea College of Business, University of New Haven, vol. 26(2), pages 503-518, November.
    • Handle: RePEc:ris:ambsrv:0090
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    File URL: https://digitalcommons.newhaven.edu/americanbusinessreview/vol26/iss2/11/
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    More about this item

    Keywords

    Interest Rates; Municipal Government Bonds; Budget Deficits; Federal Tax Rate; Quantitative Easing;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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