US Fed Expands Municipal Bond Purchase Scope to Support Cash-Strapped Local Governments

[Image source=AP Yonhap News]

[Asia Economy Reporter Jeong Hyunjin] The U.S. Federal Reserve (Fed) announced on the 3rd (local time) that it will expand the eligibility for the Municipal Liquidity Facility (MLF) loan program to support local governments facing cash liquidity difficulties due to the impact of the novel coronavirus disease (COVID-19).

According to Bloomberg News and others, the Fed stated in a press release that all 50 states in the U.S. will be allowed to directly issue bonds at the level of at least two cities or counties, regardless of population size, to participate in the Fed's MLF program. The Fed also added that governors will be able to designate two additional counties or cities within their jurisdiction, considering operational factors such as airports, tollgates, and public transportation.

This announcement by the Fed came amid concerns over tax revenue shortages in local governments due to the COVID-19 impact. Prior to this announcement, the Fed's program eligibility was limited to U.S. states and Washington D.C., cities with populations over 250,000, and counties with populations over 500,000. The Wall Street Journal (WSJ) reported that this measure will increase the number of local governments eligible to use the program from 260 to over 380.

The first local government expected to utilize this program is the state of Illinois. Illinois announced in a statement that it plans to issue $1.2 billion worth of one-year maturity bonds by the 5th and secure funds from the Fed at an interest rate of 3.82%. Illinois is facing a financial deterioration crisis due to the COVID-19 impact. In April, credit rating agency Fitch downgraded Illinois' credit rating to 'BBB-', just one notch above non-investment grade.

This content was produced with the assistance of AI translation services.