Facts every Municipal bond buyer should consider before they purchase

Municipal Bonds (also known as “munis”) are attractive to many investors because the interest income is exempt from federal income tax and in many cases, state and local taxes as well. In addition, munis often represent investments in state and local government projects that have an impact on our daily lives, including schools, highways, hospitals, housing, sewer systems and other important public projects.

When you purchase a municipal bond, you are lending money to a state or local government entity, which in turn promises to pay you a specified amount of interest, (usually paid semiannually) and return the principal to you on a specified maturity date.

Note that not all municipal bonds are exempt from taxation. Also, Income from municipal bonds may be subject to the Alternative Minimum Tax (AMT), and capital appreciation from discounted bonds may be subject to state and local taxes. Capital gains are not exempt from federal income tax.

Pricing:

 When pricing the yield of a bond, some of the key factors are:

• Creditworthiness of the issuer
• Prevailing level of interest rates
• What is the maturity, or length of the holding period.
• What are the call provisions

Bond Pricing vs. Interest Rates and Yields:

 It is important to understand in general how the direction of interest rates might affect the value of bonds.

• When interest rates increase bond prices decline

• When interest rates decline bond prices increase so if an investor sells a muni prior to maturity, they will receive current market pricing. Which may be more or less then original price.

• An estimated 5.1 million homes own municipal bonds in some form

• Daily trading volume is estimated at $11 Billion

• There are over 50,000 State and Local entities which issue municipal securities.