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.

  1. Maturity

    The period of time for which a financial instrument remains outstanding. ...
  2. Capital Expenditure (CAPEX)

    Capital expenditure, or CapEx, are funds used by a company to ...
  3. Moody's

    An independent, unaffiliated research company that rates fixed ...
  4. Debt

    An amount of money borrowed by one party from another. Many corporations/individuals ...
  5. Municipal Bond

    A debt security issued by a state, municipality or county to ...
  6. Standard & Poor's - S&P

    The world's leading index provider and the foremost source of ...
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  1. Do mutual funds invest only in stocks?

    Mutual funds invest in stocks, but certain types also invest in government and corporate bonds. Stocks are subject to the ... Read Full Answer >>
  2. What is the relationship between the current yield and risk?

    The general relationship between current yield and risk is that they increase in correlation to one another. A higher current ... Read Full Answer >>
  3. Who or what is backing municipal bonds?

    Municipal bonds are backed by dedicated taxes or revenue sources related to specific projects, or by the full faith and credit ... Read Full Answer >>
  4. How stable are municipal bonds?

    Stability is relative in the municipal bond market. Municipal bonds tend to be safer than many other types of investments, ... Read Full Answer >>
  5. What does it signify if the term structure of an interest rate's curve is positive?

    When the term structure of interest rates is positive, it is a signal to economists the short-term yields on similar bonds ... Read Full Answer >>
  6. What do cities do with the funds generated from municipal bonds?

    Funds generated from the sale of municipal bonds may go to provide for unspecified, general government financial needs, or ... Read Full Answer >>

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