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 ?
We are thrilled to be offering our industry-leading exam preparation for the MSRB's Series 52 exam," says President Jeremy Solomon, and "we look forward to helping raise our customers' pass rates and lowering their costs on this flagship exam in the municipal securities industry.
Sirianni purchased municipal securities from a broker-dealer on Oppenheimer's behalf, held the bonds in inventory for at least overnight, and then made the bonds available for resale at an unfair price to the firm's customers.
The MSRB protects investors, state and local governments and other municipal entities, and the public interest by promoting a fair and efficient municipal securities market.
In 2010 and 2011, a relentless drumbeat of dramatic and at times irresponsible headlines alarmed municipal securities investors with serious and unwarranted exaggerations of market risks.
The Funds are not changing their investment objectives and each Fund will continue to invest primarily in a portfolio of municipal securities.
To do this, the MSRB now regulates municipal advisors as well as municipal securities dealers, but does not regulate the activities of municipal entities or have jurisdiction over them.
The withdrawal from this service is prompted by the declining volume of definitive municipal securities, the Reserve Banks' expected underrecovery of costs for providing the service in future years, and the availability of reasonable private-sector alternatives.
For almost 20 years now, since the New York City fiscal crisis of the 1970s, we've been cautioning officials who authorize the issuance of municipal securities that they have a critical role in ensuring that official statements representing those securities are accurate and not misleading," said Levitt.
In addition, all municipal securities transactions executed by dealers before the closing date, known as when-issued transactions, are exempt from the T+3 requirement.
Applicants representing the public must not be affiliated with brokers, dealers, municipal securities dealers or municipal advisors.
The par amount traded in the municipal securities market in the first quarter of 2011 totaled $842,088 million, down nearly 8 percent from the $915,207 million traded in the same period last year.
Roberts said one solution to the problems of municipal securities disclosure would be for Congress to pass legislation that would give the SEC the express authority to set the accounting standards for issuers of these instruments.

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