Fed to Backstop State and Local Bond Market With $500 Billion in Loans

Published: May 01, 2020

Coronavirus (COVID-19) Pandemic

The Federal Reserve has announced that it will buy up to $500 billion in state and local bonds, via a Municipal Liquidity Facility, to halt a panic selloff resulting from revenue contractions due to pandemic response measures. Will this be the bulk of any federal "bailout" of the SLED market?

Updated: May 1, 2020

On April 27th, the list of eligible issuers was greatly expanded to include "a U.S. city with a population exceeding 250,000 residents; and a...U.S. county with a population exceeding 500,000 residents based on the most recent available U.S. Census data as of April 6, 2020."


  • The Fed's purchasing program is a significant boost to the $3.9 trillion municipal bond market.
  • Selling debt now could lead to serious spending restrictions later as the nation's largest metro areas try to rebalance their books.
  • Expect state and local leaders to lobby for some form of debt forgiveness, possibly asking for stimulus money dedicated to paying for maturing Fed-owned bonds.
  • Given the reluctance of U.S. Senate leadership to consider additional direct aid to states and localities or a major infrastructure stimulus program, it is likely that this facility along with the Coronavirus Relief Fund will be the extent of any federal "bailout" of the SLED market.

On April 9th, the Federal Reserve announced that it will purchasing up to $500 billion in state and local bonds to halt what Forbes described as a panic selloff.  According to the Fed's formal announcement, the purchases will be limited to "tax anticipation notes (TANs), tax and revenue anticipation notes (TRANs), bond anticipation notes (BANs), and other similar short-term notes issued by Eligible Issuers, provided that such notes mature no later than 24 months from the date of issuance." The Fed can purchase “up to an aggregate amount of 20% of the general revenue from own sources and utility revenue.”