Price Distortions and Municipal Bonds Premiums: Evidence from Switzerland

Vukovic D., Moinak M.

This paper examines the pricing of municipal bonds before and after a currency shock in Switzerland. This study finds that the currency price distortions of the Swiss franc in January 2015 made long run changes in the composition of the municipal bond spreads. Two approaches are used to decompose the municipal bonds to treasuries spreads into liquidity, maturity and default risk premiums. The results of this study leads to conclude that in Switzerland, the default risk premium, that accounted to 34.59% of the spread before the shock, has increased 23.56%, and still counting to 28.07% of the now wider spread after the currency shock of 2015. This research contributes to the understanding of municipal bond pricing by showing that default risk accounts for a large portion of the municipal bond spread, while maturity risk plays a lesser role.

Keywords: municipal bonds, risk premiums, bond yield spreads, price distortions

In book

Proceedings of International Analytics for Management And Economics Conference, HSE University - Saint Petersburg, September - December, 2020

Fokeev M., Филинов-Чернышев Н. Б. * Airlines values proposition: post COVID-19 changes and passengers perceived level of service differentiation. , St. Petersburg School of Economics and Management, 2020.