Determinants of Municipal Bond Yields

Since World War II, the significance of the municipal bond market has increased dramatically with state and local government debt growing much more rapidly than public and private debt, federal debt, or the gross national product. Between 1960 and 1970, the annual value of new issues of state and local government bonds increased 110 percent, and there is every indication that the total will continue its rapid rise. In 1969 and 1970, the values of state and local government bond new issues were second only to those of the corporate bond market. Despite the size of the state and local bond market, investors and researchers have devoted their attention to the markets for corporate and U.S. government securities; the interest in these markets has tended to overshadow activity in the municipal bond market.