Municipal Bond

Glossary

Banking

Municipal Bond

Municipal Bonds (known as munis) are interest-paying bonds issued by municipal authorities (cities, towns, states, some government agencies, and on behalf of private hospitals and colleges) to fund infrastructure projects in their areas, such as schools, roads, bridges and tunnels, water management and sewerage systems, and airports. In the US, interest on munis is generally exempt from Federal income tax (and from state and local taxes for investors resident in the state). To account for their tax-exempt status, munis do pay lower rates of interest than standard tax-paying corporate bonds. In the US, munis are issued as unsecured General Obligation bonds (repaid from tax receipts of the issuer), or as Revenue Bonds, which are paid only from revenues of the project being financed.

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