Asset Classes

Municipal Bond

Municipal Bond

Nickname
Muni
Plural Name
Municipal Bonds
Parent Asset Class

A municipal bond is a debt security issued by a state or municipality to finance its capital expenditures, particularly with the construction of schools, highways, or bridges. Munis can be thought of as loans that investors make to local governments. These bonds are exempt from federal taxes and most state and local taxes, making them especially attractive to people in high-income tax brackets.

TYPES OF MUNICIPAL BONDS

1. General Obligation Bond (GO)

- Issued by governmental entities, not backed by revenue from a specific project

- Backed by "full faith and credit"

- Some GO bonds are backed by dedicated property taxes


2. Revenue Bond

- Secures principal and interest payments through the issuer or sales, fuel, hotel occupancy or other taxes


RISKS OF INVESTING IN MUNI BONDS


USES OF MUNI BONDS

  • Construction of schools

  • Construction of libraries

  • Construction of infrastructure (roads, bridges, public transit)

  • Funding police departments

  • Funding fire departments

  • Building parks and pathways

  • Funding community centers

  • Funding waste management