Impact of Monetary Policy on Municipal Bond ETFs by Narayanan Jayaraman, Suzanne S. Lee, Minho Wang :: SSRN

This paper examines the effect of Federal Open Market Committee (FOMC) announcements on municipal bond exchange-traded funds (muni ETFs). We discover that muni ETF returns rise during and after FOMC announcements, with insignificant pre-announcement drifts. This return pattern reflects heightened investor attention following the announcements, which coincides with surges in trading volume and clustered jumps, particularly around press conferences. These FOMC-induced jumps are more significantly associated with post-announcement return increases than with changes in the target federal funds rate and capture the effect of retail investors, who are dominant in muni ETFs and initiate net buying only after FOMC announcements.