What is a municipal bond?

City bonds, or muni , is a bond issued by the state, the city, the region or other regional agency. Like other bonds, the city bond gives the buyer a stream of future interest payments and repayment of principal at the later date. The maturity can range from several months to 40 years. Interest obtained by the city bond can be exempt from federal and state income taxes.

There are several classifications for municipal bonds. The general obligation of the municipal bond is guaranteed by full faith and an issuer loan. They are usually issued by large, financially stable entities such as states or large cities. The city's income bond is guaranteed by an identifiable source of future income, such as the income of the city from public services or regional mineral license fees. The evaluation bonds are based on real estate tax and depend on the values ​​of property and health of the regional economy. Investors consider Munis the general duty to be the most second.

A city bond can be issued for various reasons. The state can release Munis to pay for improving roads or school financing. Quasi-government agencies, such as port authorities, can issue bonds to upgrade or extensions of equipment. Local governments can issue a municipal bond as an alternative to raise taxes per capita to pay for services or improve capital.

As well as federal treasury and corporate bonds, the city bond will be evaluated by an agency such as Standard & Poors, Moodys or Fitch. Unlike government bonds, the municipal bond carries a warranty from the federal government. Given the status without tax, investors are often willing to accept interest rates below the market; As a result, Munis's publishing is attractive to governments as a relatively cheap source of funding.

Investor can purchase a municipal bond directly from the issuing body or buy it on the secondary market afterInitial offer. It is also possible to invest indirectly in municipal bonds by investing in a mutual fund that specializes in Munis.