Market Segmentation and the Term Structure of Municipal Yields

Deskripsi

investigates the persistent phenomenon of an upward-sloping municipal bond yield curve in the United States, which is notably steeper than the U.S. Treasury yield curve. The authors contend that this pattern is best explained by maturity-based market segmentation. Using both macroeconomic time-series data and microeconomic data from individual bond issues from 1966-1975, the authors find empirical support for their hypothesis. Their results show that changes in commercial bank demand and the relative supply of short-term securities significantly impact yield ratios and spreads between municipal and Treasury securities, confirming that segmentation is a key driver of the municipal term structure.