Municipal bond

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Municipal bond

State or local governments offer muni bonds or municipals, as they are called, to pay for special projects such as highways or sewers. The interest that investors receive is exempt from some income taxes.

Municipal Bond

A bond issued by a local or state government. Municipal bonds are usually used to raise capital for improvements in infrastructure or other aspects of the municipality. For example, a city or school district may issue a bond to build a new school or a new playground. Municipal bonds are exempt from federal income taxes and sometimes from state and local taxes as well. Municipals usually pay lower coupons than corporate bonds, but because the yield is tax-free, the after-tax basis may be higher for a municipal bond. Risk varies with the municipality and the particular type of municipal bond. It is sometimes called a municipal improvement certificate.

municipal bond

The debt issue of a city, county, state, or other political entity. Interest paid by most municipal bonds is exempt from federal income taxes and often from state and local taxes as well. The tax exemption stems from the use to which the funds from a bond issue have been devoted. Municipal bonds with tax-exempt interest appeal mainly to investors with significant amounts of other taxable income. Also called muni, municipal, tax-exempt bond. See also Bond Buyer's Index, ex-legal, 501(c)(3) bond, general obligation bond, revenue bond, taxable municipal bond.
Case Study Municipal debt, like corporate debt, ranges in credit quality from investment-grade to very speculative. On November 9, 2001, bond trustee State Street Bank and Trust informed holders of $9.7 million of bonds issued by Marineland Foundation, a nonprofit corporation established by the city of Marineland, Florida, that they would receive $245 for each $1,000 of principal amount. Unfortunately for bondholders the debt was being repaid at slightly less than 25¢ on the dollar. The unrated Marineland bonds had been issued at yields of 8.5% in 1995 to institutional investors and remarketed in 1996 to individuals. Funds raised from the bond issue were used to purchase one of Florida's oldest tourist attractions. Opened south of St. Augustine, Florida, in 1937 as an underwater movie studio, Marineland opened to the public with dolphin and sea lion shows one year later. Attendance suffered beginning in the 1970s following the opening of Disney World, Sea World, Universal Studios, Circus World, and a host of other bigtime Florida attractions. Revenues at the refurbished oceanside aquarium proved too small to cover variable and fixed expenses, including interest on the debt. Marineland had been sold yet again at the time the agreement was reached with bondholders. The new owners intended to promote the attraction as a research resort where visitors could scuba-dive, hike, and learn about marine life.

Municipal bond (muni).

Municipal bonds are debt securities issued by state or local governments or their agencies to finance general governmental activities or special projects.

For example, a state may float a bond to fund the construction of highways or college dormitories.

The interest a muni pays is usually exempt from federal income taxes, and is also exempt from state and local income taxes if you live in the state where it was issued.

However, any capital gains you realize from selling a muni are taxable, and some muni interest may be vulnerable to the alternative minimum tax (AMT).

Munis generally pay interest at a lower rate than similarly rated corporate bonds of the same term. However, they appeal to investors in the highest tax brackets, who may benefit most from the tax-exempt income.

References in periodicals archive ?
Oppenheimer Rochester Short-Term Municipal Fund (ORSYX) Y shares was named Best-in-Class among 80 Short Municipal Debt Funds for the three-year period ended Nov.
Based on a comprehensive survey of municipal debt in 16 regional countries, Tuesday's S&P report says local and regional governments in the Czech Republic, Poland, Romania and Turkey continue to dominate municipal debt issuance in the CEE region this year.
Spiotto argues that taxing municipal debt would adversely affect state and local governments' access to and cost of borrowing, and their ability to address local matters and concerns related both to infrastructure and services.
The chairman said municipal bond issuers that do not keep purchasers informed well enough of matters that affect solvency and those that sell municipal debt are not informing buyers of the markups and commissions they must pay.
3 billion of municipal debt backed by the full faith and credit of the issuing city or town.
The report represents an effort by Fitch to standardize its analytical process when assessing housing market risk during a downturn, and to make this process transparent to municipal debt issuers.
Oppenheimer AMT-Free New York Municipals (OPNYX)[1] A shares was named Best-in-Class among 87 New York Municipal Debt Funds for the three-year period ended 11/30/12
Local government allocation of public goods and services and the method of payment underlie the ensuing discussion of municipal debt financing.
Since it has been an important driver of economic growth, which infused cash into government coffers and boosted employment in markets related to real estate, Fitch believes that the recent activity in the housing market warrants additional consideration among the criteria incorporated into municipal debt ratings, particularly for issuers in specific geographic regions.
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Those questions included how the Valley and what remains of Los Angeles would divide municipal debt and water rights.
An actuarial study will be completed soon which Fitch will review as part of its overall analysis of OPEB liabilities on all issuers of municipal debt.

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