Municipal bond


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Related to Municipal bond: Municipal Bond Funds

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 ?
With direct federal support to state and local governments continuing to decrease, and the lack of a clear vision from Congress or the administration on a path forward for infrastructure, the importance of the municipal bond market cannot be overstated.
He says municipal bonds currently are a "giveaway" for investors.
Aside from floating municipal bonds, an LGU has several options for funding a local infrastructure project.
Individual municipal bonds offer a more attractive investment opportunity for many people.
Both budgetary and asset-based financial reporting should be easily accessible." Reuters reports that former Federal Reserve Chairman Paul Volcker and New York Lieutenant Governor Richard Ravitch -- the two economic bigwigs that led the Task Force -- have called for more aggressive regulation on local and state-level municipal bonds in order to encourage proper documentation, budgeting, and reporting on state and local levels.
"Tax-exempt municipal bonds are a critical financing tool for clean water agencies and their communities across the country," said NACWA Executive Director Ken Kirk.
There still exists a fanatical constituency that adamantly believes widespread municipal bond defaults aren't possible.
For instance, Moody's reports that between 1970 and 2011, only 71 of the municipal bonds it rated defaulted, while S&P records only 47 such defaults between 1986 and 2011.
After a municipal bond refunding, the issuer uses the proceeds of the new issue to purchase highly rated collateral, such as U.S.
"For years now, since 2007, I have been asking you to buy municipal bonds," Orman remarked in a recent meeting with reporters.
We study the implications of market segmentation in a domestic setting, the US municipal bond market.
Since 2000 the total outstanding state and municipal bond debt, adjusted for inflation, has soared from $1.5 trillion to $2.8 trillion (see chart).

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