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A short-term debt security issued by a local or state government. Generally speaking, a municipal note has a maturity from three months to three years. Municipal notes 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 note to build a new park or a new playground. Municipal notes are exempt from federal income taxes and sometimes from state and local taxes as well. Municipal notes usually pay lower coupons than corporate notes with similar maturities, 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 note. See also: Tax Anticipation Note.
A temporary debt incurred by states, local governments, and special jurisdictions. Municipal notes are usually issued with a maturity length of 12 months, although maturities can range from 3 months to 3 years.