Traffic congestion and the municipal bond market

In this paper, we study how traffic congestion affects bond yields in urban areas of the United States (U.S.). While the adverse effects of congestion — such as increased stress and reduced economic activity — have been well documented, this is the first study that investigates its impact on the municipal bond market. Collecting the annual traffic data from the Urban Mobility Reports that were published by the Texas A&M Transportation Institute, we examine municipal bonds and find that areas with high traffic congestion exhibit significantly higher bond yields. A one standard deviation increase in traffic congestion corresponds to a 12.8 basis-point increase in overall bond yields. Furthermore, we treat the COVID-19 pandemic as a shock that reduced traffic congestion due to public safety precautions. We find that areas experiencing greater reductions in congestion see a greater decrease in bond yields. These findings have implications for infrastructure governance. In particular, our findings imply that the management of infrastructure and implementation of policies which are aimed at reducing traffic congestion may also offer capital market benefits.