Municipal Bonds

What are the two different categories of municipal securities in which I may invest?

Municipal bonds or “munis,” as they are often referred to, are divided into two categories: general obligation bonds and revenue bonds. They distinguish themselves primarily from the source of their interest payments once the debt is sold. General obligation bonds may raise taxes on a municipality in order to pay for its obligations of interest and principal payments. Revenue bonds, on the other hand, are often tied to specific capital-intensive projects that may be required by the municipal authority, and may be transportation- or utility-related. They are backed financially by the revenue that may be generated as a result of the project. Since the cash they may generate is quite variable, revenue bonds tend to be riskier than general obligation bonds.


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