What follows is a brief discussion of the major types of municipal bonds and the source of revenue for their coupon payments.

  1. General Obligation (GO) - such bonds are backed by the creditworthiness of the issuer which has taxing power. Voter approval is prerequisite for issuance. These issues are the safest and yields tend to be lower as a result. Examples of issuers are New York City, the State of Missouri, etc.
  2. Revenue - interest payments of these bonds are secured by a specific revenue stream, e.g. tolls or other user fees. Because these bonds are riskier than general obligation bonds, their yields tend to be higher for similar maturities.
  3. Short Term -
    1. Tax Anticipation Notes (TANs)
    2. Revenue Anticipation Notes (RANs)
    3. Bond Anticipation Notes (BANs)
  4. Exotic/Unique - these are usually some variation on the foregoing.
    1. Certificates of Participation -
    2. Private Activity Bonds-these are generally part of a state or local government bond issue. They satisfy two (2) criteria:
      • More than ten percent of the proceeds of the issue are for private business use.
      • More than ten percent of the principal or interest is either secured by an interest in property designated for private business use or derived for payments for property earmarked for private business use.
Bonds issued for a sports stadium would be an example. Tax-exempt interest from these types of bonds is a preference item in the calculation of the Alternative Minimum Tax (AMT) and may cause a taxpayer to be subject to the AMT.

Corporate Bond

Related Articles
  1. Investing

    Municipal Bond Tips For The Series 7 Exam

    Learn to distinguish between general obligation and revenue bonds to ace this test.
  2. Investing

    5 Reasons to Invest in Municipal Bonds When the Fed Hikes Rates

    Discover five reasons why investing in municipal bonds after the Fed hikes interest rates, and not before, can be a great way to boost investment income.
  3. Investing

    How To Choose The Right Bond For You

    Bond investing is a stable and low-risk way to diversify a portfolio. However, knowing which types of bonds are right for you is not always easy.
  4. Investing

    Why Muni Bonds and Bond Funds are Perfect Together

    Municipal bonds and bond funds differ in several ways, which is partly why they complement each other well.
  5. Investing

    The Best Bet for Retirement Income: Bonds or Bond Funds?

    Retirees seeking income from their investments typically look into bonds. Here's a look at the types of bonds, bond funds and their pros and cons.
  6. Financial Advisor

    Muni Bonds, Taxable Bonds or CDs: Which is Best?

    Here's how to tell if municipal bonds are a better investment than taxable bonds or CDs.
  7. Financial Advisor

    Why You Should Invest In Municipal Bond ETFs

    These versatile instruments have become popular with investors in higher tax brackets and fill a specific niche in the wide selection of fixed-income offerings.
  8. Investing

    Taxation Rules For Bond Investors

    Several factors affect the taxable interest that must be reported. Learn more here.
  9. Investing

    What's a Tax-Efficient Investment for a Large Sum?

    Here's how to invest a large sum, such as assets from a profit-sharing plan, with a mind toward tax efficiency.
Frequently Asked Questions
  1. Depreciation Can Shield Taxes, Bolster Cash Flow

    Depreciation can be used as a tax-deductible expense to reduce tax costs, bolstering cash flow
  2. What schools did Warren Buffett attend on his way to getting his science and economics degrees?

    Learn how Warren Buffett became so successful through his attendance at multiple prestigious schools and his real-world experiences.
  3. How many attempts at each CFA exam is a candidate permitted?

    The CFA Institute allows an individual an unlimited amount of attempts at each examination.Although you can attempt the examination ...
  4. What's the average salary of a market research analyst?

    Learn about average stock market analyst salaries in the U.S. and different factors that affect salaries and overall levels ...
Trading Center