Series 7

Municipal Securities - Issuing Munis

Municipal bonds are issued for periods ranging from one year to 40 years, although short-term municipal notes are also available. New issues of municipal securities are sold weekly to syndicates, (groups of dealers), who bid competitively for the issues. Existing issues are available through the secondary market.

Munis generally trade in stacks of $5,000, but can trade in the even more basic unit of $1,000. Short-term municipal notes generally trade in multiples of $100,000. As with other bonds, munis generally pay interest semi-annually, although this is not a fixed rule. Monthly, quarterly and annual payment schedules are not unheard of, and short-term notes generally pay interest at maturity.

Munis have one of three types of maturities:
  1. Term: The entire issue matures simultaneously and after a long period; used to finance projects for which short-term revenues are uncertain.
    • term (dollar) bonds are quoted as a price, or as a percentage of par.

  2. Serial: Issue matures over a period of several years; used for projects with more predictable revenues.
    • serial bonds are quoted in basis points.

  3. Serial with balloon: A hybrid of term and serial; most bonds mature in a single "balloon" year.
Since 1983, municipal bonds have been issued in registered form only, meaning the purchaser's name is registered on the issuer's books and appears on the bond. Today a growing number of municipal bonds are issued in book-entry form. Both processes are beneficial as they provide protection from loss or theft, automatic payment of interest, notification of calls and ease of transfer. Let's take a closer look at book-entry issuances.
  • Book-Entry Form

    • Similar to how federal government securities are issued, where ownership is recorded through data entry at a central clearinghouse and a confirmation from the broker-dealer provides the purchaser with a written record of the transaction.

    • With book-entry securities, the physical transfer of certificates is not necessary and the process can be thought of as registered issuance done online.

  • Unregistered Munis

    • Before the law changed in 1983, munis were issued mostly in certificate form with coupons attached, called "bearer bonds".

    • Some "bearer bonds" still trade in the secondary marketplace today.

    • Since these certificates were not registered, the issuers do not know who owns them. Owners need to literally clip the coupons from their certificates in order to collect their interest payments from the issuer's agent. If they do not clip the coupon, or if the coupon is lost, the holder would receive no payment.

    • Transferring bearer bonds requires physical delivery and payment.

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