The Broader Market

by Jordan Eizenga and Seth Hanlon

In the months after the collapse of Lehman Brothers in September 2008, fear and uncertainty in the global credit markets spread to the municipal bond market. Investors fled muni bonds and prices plunged.

Advisers recommended that state and local governments delay issuing new debt because of high yields and weak demand. But pressing financial and infrastructure needs meant that state and local governments often could not just wait out the crisis. The turmoil in the municipal bond market threatened to worsen the nation’s plunge into recession.