What are Municipal Bonds?
Municipal Bonds are bonds issued by a city, state or local government.
A bond is a debt instrument where an investor loans money to an entity for a fixed period. For this, the lender receives a variable or fixed interest rate usually paid every six months for the life of the bond, where upon maturity the loan or ‘principle’ is repaid.
Uses for Municipal Bonds
Municipal bonds are issued by the government to the public for the purposes of raising money for the government, thus creating a futures contract. This is generally for the purpose of infrastructure such as building a hospital, bridge or road.
Risks of Municipal Bonds
All Municipal bonds are rated by credit companies such as Fitch, Moody’s or Standard and Poor's. These ratings should be looked at by potential investors.
Municipal bonds are issued by the government and as such are government backed. In first world countries these investments are considered to be a particularly ‘safe’ investment, making them attractive to large investors.