An Overview on Municipal Bonds

To maintain infrastructure is a vital necessity to governments, and can be costly to do.  This need brought about a new way to invest: investing in municipal bonds.  These bonds have less risk than other investments; one can easily check the issuing governments previous success on repaying its obligations, as well as what others who have purchased the municipal bonds thought.

Buying Municipal Bonds

The basic idea of the municipal bond is to “…to raise money for public purposes—such as building schools, highways, hospitals, sewer systems, and other special projects.”.  These bonds can be issued from states, cities, counties, and other governmental entities.  Many sales of municipal bond vary and so each must be analyzed on its own. One concern when investing in municipal bonds is the lack of information available about these bonds.  This is due to the fact that municipal bonds trade infrequently.

Tips for Buying Municipal Bonds

  1. Since each municipal bonds is unique, one should rely heavily on the credit ratings.
  2. Know who is responsible for servicing the interest payments on the municipal bonds
  3. Understand the economics of the municipal bonds
  4. Ensure that the risk is minimized as much as possible before investing

Municipal Bond Yields

Municipal bonds are issued by governments, so the odds of repayment are relatively high.  Even though municipal bonds are considered relatively conservative investments, like all investments, they municipal bonds carry risk.  Some people overlook this risk because it is a government who is indebted to them, but just like any company, a government can default on a loan.

Books on Municipal Bonds

Books on Municipal bonds are available on various websites.  One can find a listing of books and from the Library of Congress, which provides an extensive library of for reference on the topic of municipal bonds.   Other books can be found on Amazon, such as ‘Keys to Investing in Municipal Bonds (Barron’s Business Keys)’ .

Municipal bonds may not be offered by any one entity regularly, government deficits speak for the demand for money by governments. Municipal bonds can become a great investment with low risk and fair returns if one puts in enough effort to review the various opportunities they have.

By – Domenic Gabriella for GovernmentBond.com

The Basics of Muncipal Bonds – Part 2

To maintain infrastructure is a vital necessity to governments, and can be costly to do.  This need brought about a new way to invest: municipal bonds.  These bonds have less risk than other investments; one can easily check the issuing governments previous success on repaying its obligations, as well as what others who have purchased the municipal bonds thought.

The basic idea of the municipal bond is to “…to raise money for public purposes—such as building schools, highways, hospitals, sewer systems, and other special projects” (http://www.sec.gov/answers/bondmun.htm).  These bonds can be issued from “states, cities, counties, and other governmental entities” (http://www.sec.gov/answers/bondmun.htm).  Many sales of municipal bond vary and so each must be analyzed on its own.

Municipal bonds are issued by governments, so the odds of repayment are relatively high.  However, “…while munis have historically been considered relatively conservative investments, they do, like all bond investments, carry risk” (http://www.finra.org/Investors/ProtectYourself/InvestorAlerts/Bonds/P118923).  Some people overlook this risk because it is a government who is indebted to them, but just like any company, a government can default on a loan.

Another concern when investing into municipal bonds is the lack of information available about them.  This is due to the fact that, “many municipal bonds trade infrequently” (http://www.finra.org/Investors/ProtectYourself/InvestorAlerts/Bonds/P118923).  Also, each batch of municipal bonds is unique, so when researching, one may have to “rely heavily on the credit ratings assigned by various credit agencies” (http://beginnersinvest.about.com/cs/municipalbonds/a/aa071502.htm).  The other way to make a more informed decision is to check out “…1.) who is responsible for servicing the interest payments on the bonds, and 2.) the underlying economics of the issuer” (http://beginnersinvest.about.com/cs/municipalbonds/a/aa071502.htm).  From the ‘Security Analysis’ of 1942, “Benjamin Graham recommended municipal bonds possess…population of 10,000 or greater…diverse economy… history of punctual payment on past obligations” (http://beginnersinvest.about.com/cs/municipalbonds/a/aa071502.htm).  Following these guidelines when researching municipal bonds should ensure that the risk (already minute) is minimized as much as possible before one invests.

There are many sites where one can get a better background on municipal bonds.  Some offer the basic outline of municipal bonds and then stem off to other more specific readings. This is one example of such a site: http://beginnersinvest.about.com/cs/municipalbonds/a/aa071502.htm.  Other good sites to reference are the sites that rate municipal bonds, such as Standard & Poor (S&P).  Their site http://www.kennyweb.com/kwnext/mip/pi/pidirectorycurrent.html has a listing of all “…bonds held by managed municipal bond fund customers of Standard & Poor’s Securities Pricing, Inc.” (http://www.kennyweb.com/kwnext/mip/pi/pidirectorycurrent.html).  Such a site can help with assessing the safety of the bond, but no matter how much risk one tries to remove, it is important to remember there will always be uncertainty and thus always some degree of risk.

Books on Municipal bonds are available on various websites.  One can find a listing of books and from the Library of Congress, which provides an extensive library of for reference on the topic of municipal bonds: http://www.loc.gov/fedsearch/metasearch/?cclquery=municipal+bongs&search_button=GO#query=%28municipal%20bonds%29&filter=pz:id=lcweb|ammem|catalog|ppoc|thomas.   Other books can be found on Amazon, such as ‘Keys to Investing in Municipal Bonds (Barron’s Business Keys)’ (http://www.amazon.com/Investing-Municipal-Bonds-Barrons-Business/dp/0812095154). Another site with a library of books on the subject of municipal bonds is Wilson White & Co. that can be found here: http://www.municipal-bond-expert-witness.com/WW/template/main/index.php?books.php.

Municipal bonds may not be offered by any one entity regularly, government deficits speak for the demand for money by governments. Municipal bonds can become a great investment with low risk and fair returns if one puts in enough effort to review the various opportunities they have.

By – Domenic Gabriella

Basics of Investing in Municipal Bonds

For risk-averse investors municipal bonds or “munis” offer a harbor in a storm of economic uncertainty and stock market volatility.

Muncipal bonds are typically backed by the tax raising ability of local or “muncipal governments”. They are usually issued to fund government projects such as road construction, waste water treatment plant construction, school construction and the like.

Unlike the investment portolio losses caused by recent stock market volatility investments in municipal bonds have offered a fixed, predictable income, usually with full or partially tax-exempt interest (especially important if the bonds are held outside of tax deferred IRAs), and a very low possibility of default. In other words, unlike investments in stocks or equities, your investment of principal – what you pay up front for municipal bonds – tends to be very secure.

When investing in municipal bonds it is important to research the demographics of a muncipality or city,  as well as its surrounding geographical area.  Investment risk can be a function of total population, population demographics (age and income),  diversity of the local economy (tax base, including both residential and commercial), and a history of on-time payments by the local government.

The minimum investment in muncipal bonds cant be very costly, often $5,000.

If you have the capital, the hard part is finding out where to buy them and if they are right for you.

Municipal bond traders and dealers must be registered with the Municipal Securities Rulemaking Board (MSRB). There over 2,500 registered dealers that are licensed to sell municipal bonds. They include bond dealers, banks, and nearly all full service brokerages.

Most major investment firms, such as RBC and Merrill Lynch, sell muncipal bonds.

Those who should invest in municipal bonds include those with high incomes and those who live  in States with higher income tax rates, such as California or New York.

Always ask your broker first for advice (make sure your dealer is registered wit the MSRB). Doe your best to assess all possible risks and understand the features of the bond. -Research the bond issue on your own to find the best prices and yields. Check websites like www.investinginbonds.com for price data.  Ask for legal documents like a prospectus that describes the security being offered and its terms.

By – Zania J. Faye