Municipal Bonds Key Terms

Learn the key terms for municipal bonds before investing

Municipal bonds refer to bonds issued by cities, local governments and agencies. Issuers of municipal bonds include counties, school districts and publicly owned airports. There are many aspects to using municipal bonds and there are key words used to describe each one so that potential investors and insurers are knowledgeable about the risks and rewards. It is essential to know these key terms in order to make wise decisions about investments.

Advance refunding

Advance refunding refers to new bonds that are issued to repay outstanding bonds before the first due date. This financial technique lets issuers receive lower interest rate benefits when outstanding bonds aren't callable.

Maturity date

Maturity date is the date when the principal amount of a loan, draft or note becomes payable or due. It is also the termination or due date of a loan.

General obligation

General obligation or GO bonds are backed by credit or the taxing power of the jurisdictions where they were issued. Every state in the United States as well as many local areas issues GO bonds. These bonds are more secure than revenue bonds.

Revenue bonds

Revenue bonds are guaranteed revenue flow by issuing agencies. Those agencies include governments, authorities and public benefit corporations. Revenue bonds are a type of municipal bond that finances public works projects such as the building or repair of bridges or tunnels and college loans. Colleges and universities also benefit from receiving revenue bonds.

Risk factors

Risk factors refers to risks including legislation, litigation, business changes, governmental changes, changes in the financial situation of the issuer such as bankruptcy that disrupt the collection of revenue from projects. Credit risk, tax risk and interest rate risk are other types of risk factors that effect municipal bonds.

Zero-coupon bonds

Investors in zero-coupon bonds do not pay interest. Bought at prices below face value, zero-coupon bonds are long-term bonds. Since these are long-term bonds, investors have the opportunity to use the money for long-range plans. U. S. Treasury bills and U. S. saving bonds are types of zero-coupon bonds.
U.S. Securities and Exchange Commission.