Municipal bonds are issued by states, cities, counties and other
governmental agencies to raise money to fund public works projects
like bridges, tunnels, highways, sewers, schools and other public-oriented
projects. Municipal securities consist of short term notes that
mature in one year or less and long-term bonds that mature in more
than one year. The principal and interest for general obligation
bonds are supported by the issuer's taxing power. Revenue bonds
are supported from tolls, rents and fees.
Municipal bonds are popular with investors because they offer safe,
predictable income streams and most of them are free from federal
taxes. The yield of a tax-exempt municipal bond is generally lower
than the yield of a comparable (maturity and credit risk) taxable
bond. The table
of tax-exempt/taxable yield equivalents compares yields of taxable
and tax-exempt bonds. In some cases municipal bonds are also exempt
from state and local taxes.
Like other marketable bonds you can hold a municipal bond until
it matures or buy and sell it in the bond market. |
