A Flash in the Pan(demic)? Migration Risks and Municipal Bonds

We examine how the market is pricing risks to municipalities arising from the shift in location preferences induced by the pandemic. Areas experiencing negative migration shocks in the middle of 2020 exhibit higher municipal bond yield spreads through the end of 2021. This effect is concentrated at the 5-10 year horizon, is not explained by other local economic shocks, and is larger for bonds and in areas with more work-from-home exposure. Overall, our results suggest that investors have changed their estimates of the level or uncertainty of municipalities' future cash flows, especially for areas and bonds most exposed to the transition toward remote work.