Municipal Securities - Special Munis

Sometimes munis are issued under special circumstances, which merit discussion here:

  • Special tax bond: Secured by a special tax, such as a gasoline tax.

  • Special assessment bond: Secured by the taxes of the community benefiting from the bond-funded project, such as a proposed library.

  • Moral obligation bond: A state pledges, without legal obligation, to make up a revenue bond's shortfalls through a debt service reserve fund; this type of bond is less legally binding but otherwise similar to a double-barreled bond (see below).

  • Advance-refunding: A structure under which new bonds are issued to repay an outstanding bond issue prior to its first call date. Proceeds of the new issue are invested in government securities, then the interest and principal repayments on these securities are used to repay the old issue.

  • Double-barreled bond: Two separate entities make a financial commitment. The project's revenues provide the initial security, and the secondary guarantee is provided by the general obligation taxing powers of the issuer.

  • Taxable bond: Because the federal government will not subsidize activities that do not benefit the public at large, sometimes municipalities must issue taxable bonds. Building new stadiums, refunding a refunded issue and replenishing a municipal employee pension plan are typical uses for taxable munis.

  • Original issue discount (OID) bond: Issued at a dollar price less than par; the difference between the issue price and par is treated as tax-exempt income rather than a capital gain if the bonds are held to maturity, due to special treatment under federal law.

  • Zero-coupon bond: The investor receives one payment at maturity equal to the principal invested plus compound interest at a stated yield; this contrasts with the muni convention of semi-annual coupon payments. Zero-coupon munis are a $10 billion per year market, which is small compared to the market for zero-coupon T-bonds or corporate bonds. Still, it is growing quickly as investors are attracted to the low cost of entry inherent in zero-coupons combined with the tax exemptions of munis.
Related Articles
  1. Professionals

    5 Reasons Financial Advisors Still Choose Mutual Funds

    Take a look at five primary reasons why financial advisors still choose to recommend mutual funds over other types of investment vehicles.
  2. Brokers

    Broker-Dealer Industry 101: The Landscape

    Independent broker-dealers are a great choice for experienced, self-starter planners who have established practices.
  3. Personal Finance

    RIAs and Brokers: What's the Difference?

    RIAs and brokers are held to different standards when providing investment advice. Here's how they differ.
  4. Trading Systems & Software

    Steps to Starting Up an Independent Broker Dealer

    Launching your own broker-dealer is a lot of work, but the potential payoff is great, both personally and financially.
  5. Professionals

    How To Answer Option Questions On The Series 7 Exam

    Learn how to answer option questions on the Series 7 exam. Pass your Series 7 exam with the help of these tips.
  6. Professionals

    Series 55

    FINRA Series 55 Exam Guide
  7. Professionals

    Series 62

    FINRA Series 62 Exam Guide
  8. Professionals

    Series 99

    FINRA/NASAA Series 99 Exam Guide
  9. Professionals

    Series 65

    FINRA/NASAA Series 65 Exam Guide
  10. Professionals

    Series 66

    FINRA/NASAA Series 66 Exam Guide
  1. No results found.
  1. Do financial advisors need to pass the Series 7 exam?

    The exact nature of a financial advisor's job responsibilities determines whether he must have a Series 7 license. If a financial ... Read Full Answer >>
  2. Do financial advisors have to be licensed?

    Financial advisors must possess various securities licenses in order to sell investment products. The specific products an ... Read Full Answer >>
  3. What are the differences between the Series 6 exam and the Series 7 exam?

    The Financial Industry Regulatory Authority (FINRA) offers a variety of licenses that must be obtained before conducting ... Read Full Answer >>
Hot Definitions
  1. Take A Bath

    A slang term referring to the situation of an investor who has experienced a large loss from an investment or speculative ...
  2. Black Friday

    1. A day of stock market catastrophe. Originally, September 24, 1869, was deemed Black Friday. The crash was sparked by gold ...
  3. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  4. Barefoot Pilgrim

    A slang term for an unsophisticated investor who loses all of his or her wealth by trading equities in the stock market. ...
  5. Quick Ratio

    The quick ratio is an indicator of a company’s short-term liquidity. The quick ratio measures a company’s ability to meet ...
  6. Black Tuesday

    October 29, 1929, when the DJIA fell 12% - one of the largest one-day drops in stock market history. More than 16 million ...
Trading Center