In deposit terminology, the term Municipal Bond refers to a to a debt instrument bearing interest and issued by a municipality. As with all bonds, a Municipal Bond generally promises to pay a certain amount on a certain date, as well as period interest payments commonly termed coupons.
For example, a Municipal Bond will often provide investors with significant security due to their payments being guaranteed by a municipality. The degree of security offered by a Municipal Bond is usually less than that seen with sovereign bonds issued by countries, but greater than that provided by corporate bonds issued by companies.In addition, a Municipal Bond tends to be a more liquid investment than a certificate of deposit, but less liquid than Sovereign Bonds, and it will often be readily transferrable to other parties in the open market. A municipality might issue a Municipal Bond to help pay for a new school or other major community project.