Municipal Bonds Explainer
Municipal bonds, or munis, are debt securities issued by states, cities, counties, school districts, agencies, and other governmental or related entities. Proceeds can finance roads, schools, utilities, hospitals, housing, and other public or qualifying projects.
General obligation bonds rely primarily on an issuer’s taxing power or broad resources, while revenue bonds depend on income from a specific project, system, or pledged stream. Security structures vary, so the issuer name alone does not reveal the source or priority of repayment.
Interest may be exempt from federal income tax and sometimes from state or local tax for qualifying residents, but exceptions, private-activity treatment, capital gains, and alternative-minimum-tax considerations can apply. Tax-equivalent yield helps compare a tax-exempt bond with a taxable alternative.
Investors face credit, interest-rate, call, liquidity, inflation, and disclosure risks. The official statement, continuing disclosures, audited financials, debt profile, pledged revenues, reserves, covenants, and trade data deserve review. A public-purpose project does not make principal repayment guaranteed.
States and local entities finance infrastructure and services.
Each security has its own pledged repayment source.
One relies broadly on government resources; the other on specified revenues.
Legal structure and covenants matter.
Credit, call, rate, and liquidity exposure remain.
Compare after-tax return with the full disclosure record.
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