Municipal Bond

A municipal bond is a debt security issued by a state, city, county, or other governmental entity to finance public projects—such as schools, highways, water facilities, or infrastructure. Investors who buy municipal bonds are lending money to the issuer in exchange for regular interest payments (usually semiannual) and the eventual return of principal at maturity. Most municipal bonds offer tax advantages, with interest often exempt from federal and sometimes state or local income taxes for residents of the issuing state.​

There are two primary types:

• General obligation bonds (GO): Backed by the “full faith and credit” and taxing power of the issuer, not tied to any specific project.​

• Revenue bonds: Secured by income generated from the specific project or source, such as tolls, utilities, or lease fees.​

Municipal bonds are generally considered low risk compared to corporate bonds, though investors face interest rate and default risk, and some muni bonds may have call provisions or limited liquidity.