Municipal Note

DEFINITION of 'Municipal Note'

Debt issued by state and local governments to finance capital expenditures such as construction projects. Municipal notes are appealing to investors because they mature in one year or less, offer fixed income and are often exempt from income tax at the local, state and/or federal levels.

BREAKING DOWN 'Municipal Note'

Investors can determine the risk of investing in a particular municipal note by examining the ratings issued by Moody's and by Standard & Poor's.

Moody's gives municipal notes three possible ratings: MIG 1 (best quality), MIG 2 (high quality) and MIG 3 (adequate quality).

Standard & Poor's uses a four-tiered rating system: SP-1+, SP-1, SP-2 and SP-3. Only the first three are considered worth investing in. SP-3 municipal notes are considered speculative.