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Base guide Municipal Bonds What is a bond? A bond is simply an IOU of the organization, namely, a promise of repayment of a sum of money at a certain interest rate over a period of time. In other words, a bond is a debt instrument. Other terms of these debt instruments are notes and bonds. Most bonds pay a fixed interest rate (variable rate bonds are coming in more slowly if the user) for a fixed period of time. Why do organizations issue bonds? To say that a company needs to build a new office building, or requirements for the purchase of manufacturing equipment, or the need to purchase aircraft. Or maybe it needs a government of the city to build a new school, repair streets, or to renew the sewer network. Whatever the need, a large sum of money will be necessary to do the job. What are municipal bonds? Municipal bonds are issued by cities, states and other local organizations and may or may not be as secure as the corporate bond. Some municipal bonds are backed by the taxing authority of the state or city, while others rely on earning income to pay interest and principal obligations. Municipal bonds are not taxable by the federal government (some may be subject to AMT) and then not pay more interest corporate bonds. Municipal bonds (also known as "munis") are attractive to many investors because the interest is exempt from tax on income the federal law, and in many cases, state and local taxes. Moreover, munis often represent investments of state and local projects that have an impact on our daily lives, including schools, roads, hospitals, housing, sewer and other important public projects. Two varieties of Municipal Bonds municipal bonds come in two varieties: general obligation bonds and revenue bonds. General obligation bonds issued to raise immediate capital to cover expenses, are supported by the taxing power of the issuer. Revenue bonds, which are issued to finance infrastructure projects, are supported by revenues generated by these projects. Both types of securities are tax exempt and particularly attractive to the investor at risk due to the strong likelihood that the issuer to repay their debts.