Municipal Convertible

AAA

DEFINITION of 'Municipal Convertible'

A zero-coupon municipal bond that can be converted into an interest-bearing bond under certain circumstances. The municipal convertible is a zero-coupon bond, and is sold at a discount from its face value. The bondholder does not have to worry about paying tax on the appreciation which is similar to not paying tax on the interest of a regular municipal bond. Also known as Stepped Tax-exempt Appreciation on Income Realization Securities (STAIRS).

INVESTOPEDIA EXPLAINS 'Municipal Convertible'

Because these securities bear no interest payments, they're much more volatile than traditional municipal bonds. Municipal convertibles fall in value much quicker as interest rates rise, and rise in value much quicker when rates fall. An investor may want to convert to an interest-bearing bond if they want to reduce volatility, or lock in bond value if they believe rates will rise in the future.

RELATED TERMS
  1. Convertible Debenture

    A type of loan issued by a company that can be converted into ...
  2. Convertible Bond

    A bond that can be converted into a predetermined amount of the ...
  3. Zero-Coupon Convertible

    A fixed income instrument that is a combination of a zero-coupon ...
  4. Convertibles

    Securities, usually bonds or preferred shares, that can be converted ...
  5. Municipal Bond

    A debt security issued by a state, municipality or county to ...
  6. Zero-Coupon Bond

    A debt security that doesn't pay interest (a coupon) but is traded ...
Related Articles
  1. Bonds & Fixed Income

    The Basics Of Municipal Bonds

    Investing in these bonds may offer a tax-free income stream but they are not without risks.
  2. Bonds & Fixed Income

    Find The Right Bond At The Right Time

    Find out which bonds you should be investing in and when you should be buying them.
  3. Taxes

    Avoid Tricky Tax Issues On Municipal Bonds

    Learn the rules every investor should know before buying into this "tax-free" investment.
  4. Bonds & Fixed Income

    Convertible Bonds: An Introduction

    Find out about the nuts and bolts, pros and cons of investing in bonds.
  5. Taxes

    Why Retirees Can't Count On Muni Bonds

    Interest may not be tax-exempt for seniors with Medicare or Social Security benefits.
  6. Mutual Funds & ETFs

    Fatal Seduction Of The Municipal Bond Insurers

    Learn how a foray into CDOs and other exotic products ruined an industry's image.
  7. Retirement

    Bond Basics Tutorial

    Investing in bonds - What are they, and do they belong in your portfolio?
  8. Bonds & Fixed Income

    How do I calculate yield to maturity of a zero coupon bond?

    Find out how to calculate the yield to maturity for a zero coupon bond, and see why this calculation is more simple than a bond with a coupon.
  9. Bonds & Fixed Income

    Why are bond yields calculated in terms of basis points?

    Find out why financial analysts and publications track and quote bond yields in basis points, or bps, rather than simply stating percentages.
  10. Trading Strategies

    How risky is it to enter into a debenture agreement?

    Understand the nature of debenture agreements and the inherent risks and clauses that may provide additional protection for bondholders.

You May Also Like

Hot Definitions
  1. Portfolio Turnover

    A measure of how frequently assets within a fund are bought and sold by the managers. Portfolio turnover is calculated by ...
  2. Commercial Paper

    An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories ...
  3. Federal Funds Rate

    The interest rate at which a depository institution lends funds maintained at the Federal Reserve to another depository institution ...
  4. Fixed Asset

    A long-term tangible piece of property that a firm owns and uses in the production of its income and is not expected to be ...
  5. Break-Even Analysis

    An analysis to determine the point at which revenue received equals the costs associated with receiving the revenue. Break-even ...
  6. Key Performance Indicators - KPI

    A set of quantifiable measures that a company or industry uses to gauge or compare performance in terms of meeting their ...
Trading Center