Backstory Default risk premiums are interpreted as the probability of a borrower missing an interest payment or principal repayment. Municipal bonds are not default risk free, despite being issued by...

Why were investors selling/not buying municipal debt at the onset of the COVID-19 pandemic? Explain
Municipal Bonds
A municipal bond is a financial debt instrument which is generally issued by the state or the local government in order to raise the capital investments in construction of schools, roads, hospitals, bridges, public utilities and various other infrastructural facilities. The investors are the ones who purchase these bonds from the local or the state government of a country at an interest rate much lower than the rate of inflation. This is due to the fact that the municipal bonds offers tax exemptions and concessions and helps in the growth of capital of the investors. There are three types of municipal bonds which are generally available in the market which are general Obligation Bonds, revenue bonds and assessment bonds.
Municipal Bonds in USA
Municipal bonds in USA were in a good shape and were growing considerably before the global pandemic covid-19 situation. Since, it paid a fixed rate of interest most of the people and the investors on the verge of retirements wanted to enjoy their golden years by withdrawing the funds and accesses them just before or after the retirements. They even gets considerable amount of tax exemptions by investing in the municipal bonds. It was one of the...