Who issues municipal bonds?

4th Dec 2009 by Michael Haltman

Municipal bonds are issued by state and local governments (general obligation bonds) and by government entities and agencies such as water and sewer or housing bonds (revenue bonds). General obligation bonds are backed by the full faith and credit of the issuer, meaning that it can raise taxes to any level necessary to pay debt service. This makes them somewhat more secure than a revenue bond in which the issuer relies on the revenues of the project or facility to pay the debt service (toll road bonds).

Because of the state of the economy, there may be some revenue bonds in healthier states that are more secure than the general obligation bonds of a town in troubled state, but the general rule is that it is preferable to own a G.O. over revenue.

The interest on a municipal bond is federally tax exempt, and if you buy a bond issued by the state in which you live it is typically state tax free as well. Bonds issued by Puerto Rico and a few others are double tax free regardless of the state you live in.

This answer is the subjective opinion of the writer and not of FinancialAdvisory.com