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 ?
The ICE municipal securities indices are part of the broad municipal security offering across ICE, which includes ICE Data Services municipal bond evaluations and reference data for over one million bonds, as well as the deep municipal bond liquidity and execution protocols offered by ICE TMC Bonds and BondPoint.
(47) It was an act "[t]o promote the financial stability of the United States by improving accountability and transparency in the financial system, to end 'too big to fail,' to protect the American taxpayer by ending bailouts, to protect consumers from abusive financial service practices, and for other purposes." (48) Section 975 of the Dodd-Frank Act made several changes to the oversight of the municipal securities market.
Municipal advisors and municipal securities dealers, she continued, "will be seeing a significant increase in MSRB outreach events, educational opportunities and the release of various forms of compliance aids, all with the goal of facilitating compliance with MSRB rules."
(50) While this possibility is not likely contemplated by municipal securities investors, recent events demonstrate that it should be.
The Municipal Securities Representative Qualification Exam is written by the MSRB but administered by FINRA.
It makes it "unlawful for a municipal advisor to provide advice to or on behalf of a municipal entity or obligated person with respect to municipal financial products or the issuance of municipal securities, or to undertake a solicitation of a municipal entity or obligated person, unless the municipal advisor is registered in accordance with [the law]."
Congress created the MSRB in 1975 to oversee the municipal market to promote market integrity and transparency by regulating those who underwrite, trade and sell municipal securities. The Wall Street Reform Act expanded the role of the MSRB to include "the protection of state and local government issuers, public pension plans and others whose credit stands behind municipal bonds, in addition to protecting investors and the public interest."
Typically, when investors purchase municipal securities, the municipalities temporarily invest the proceeds of the sales in municipal reinvestment products until the money is used for the intended purposes.
Persons acting as intermediaries between buyers and sellers of the warrants may need to register as brokers, dealers or municipal securities dealers, or as alternative trading systems or national securities exchanges.
Not to put anyone off, but the field of municipal securities (1)
Content includes coverage of such topics as the effective use of fight letters in proxy contests, SEC losses in recent insider trading cases, disclosure obligations of issues of municipal securities, ethical duties for lawyers under the Sarbanes-Oxley Act, and the dorporate opportunity doctrine as it relates to IPOs.
In late February, the Federal Reserve Board approved a proposal that Reserve Banks no longer provide services to financial institutions for collecting and processing definitive municipal securities, which are registered or bearer bonds issued by state and local governments with interest coupons in physical form.

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