What are Municipal Bonds?

What are Municipal Bonds?


Welcome to the Investors Trading Academy talking
glossary of financial terms and events. Our word of the day is “Municipal Bonds”
Municipal bonds are issued by a government, such as a state, county, district or municipality.
Issuers often use the money to pay for public projects, like roads or construction projects,
that would otherwise come directly out of taxpayers’ pockets. In most cases, the interest
holders of municipal bonds receive is exempt from federal taxes, which is a huge appeal
for investors. Maturities can range from the short term, usually one to three years, to
a decade or longer. Municipal bonds called munis are debt obligations
issued by government entities. When you buy a municipal bond, you are loaning money to
the issuer in exchange for a set number of interest payments over a predetermined period.
At the end of that period, the bond reaches its maturity date, and the full amount of
your original investment is returned to you. While municipal bonds are available in both
taxable and tax-exempt formats, the tax-exempt bonds tend to get the most attention because
the income they generate is for most investors exempt from federal and, in many cases, state
and local income taxes.

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