Municipal Convertible

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.



comments powered by Disqus
Hot Definitions
  1. Benchmark Bond

    A bond that provides a standard against which the performance of other bonds can be measured. Government bonds are almost always used as benchmark bonds. Also referred to as "benchmark issue" or "bellwether issue".
  2. Market Capitalization

    The total dollar market value of all of a company's outstanding shares. Market capitalization is calculated by multiplying a company's shares outstanding by the current market price of one share. The investment community uses this figure to determine a company's size, as opposed to sales or total asset figures.
  3. Oil Reserves

    An estimate of the amount of crude oil located in a particular economic region. Oil reserves must have the potential of being extracted under current technological constraints. For example, if oil pools are located at unattainable depths, they would not be considered part of the nation's reserves.
  4. Joint Venture - JV

    A business arrangement in which two or more parties agree to pool their resources for the purpose of accomplishing a specific task. This task can be a new project or any other business activity. In a joint venture (JV), each of the participants is responsible for profits, losses and costs associated with it.
  5. Aggregate Risk

    The exposure of a bank, financial institution, or any type of major investor to foreign exchange contracts - both spot and forward - from a single counterparty or client. Aggregate risk in forex may also be defined as the total exposure of an entity to changes or fluctuations in currency rates.
  6. Organic Growth

    The growth rate that a company can achieve by increasing output and enhancing sales. This excludes any profits or growth acquired from takeovers, acquisitions or mergers. Takeovers, acquisitions and mergers do not bring about profits generated within the company, and are therefore not considered organic.
Trading Center