Taxable Municipal Bond


DEFINITION of 'Taxable Municipal Bond'

A fixed-income security issued by a local government such as a city or county or related agencies, the income from which is not exempt from tax. Taxable municipal bonds are generally issued to finance a project or activity that does not provide a major benefit to the public. In such cases, the federal government will not permit the tax-exemption that is a prominent feature of most municipal bonds.

BREAKING DOWN 'Taxable Municipal Bond'

Most municipal bonds are tax exempt. Since income from such non tax exempt bonds is taxable in the hands of the investor, they offer risk-adjusted yields that are comparable to those available from other taxable entities such as corporate bonds, rather than tax-exempt munis.

Examples of situations where taxable municipal bonds may be issued include financing local sports facilities or funding an under-funded municipal pension plan. Build America Bonds (BABs) are an example of taxable municipal bonds; they were created under the American Recovery and Reinvestment Act of 2009 and, although taxable, have special tax credits and federal subsidies for either the bond issuer or holder.

  1. Bond Bank

    A state-level entity that provides that state's smaller public ...
  2. Tax-Exempt Sector

    The market niche comprised of investment vehicles exempt from ...
  3. Build America Bonds - BABs

    Taxable municipal bonds that feature tax credits and/or federal ...
  4. Municipals-Over-Bonds Spread - ...

    The difference in yields between a municipal bond and a Treasury ...
  5. Tax-Equivalent Yield

    The pretax yield that a taxable bond needs to possess for its ...
  6. Tax Exempt

    To be free from, or not subject to, taxation by regulators or ...
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  1. What is the difference between municipal bonds and standard money market funds?

    The primary difference between municipal bonds - also known as "munis" - and money market funds is that municipal bonds are ... Read Full Answer >>
  2. 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 >>
  3. 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 >>
  4. 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 >>
  5. 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 >>
  6. 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 >>

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