Municipal Bond Terms That Investors Need To Know (R-Z)

January 20, 2014

We define and give examples of all municipal bond terms starting with R through Z.

Municipal Bond Terms That Investors Need To Know (M-P)

January 17, 2014

We define and give examples of all municipal bond terms starting with M through P.

Municipal Bond Terms That Investors Need To Know (E-L)

January 14, 2014

We define and give examples of all municipal bond terms starting with E through L.

Municipal Bond Terms That Investors Need To Know (C-D)

January 09, 2014

We define and give examples of all municipal bond terms starting with C and D.

Municipal Bond Terms That Investors Need to Know (A-B)

January 07, 2014

In this article, we will define many of the most common terms and provide some examples of their everyday usage.

Exploring The Municipal/Treasury Ratio

September 24, 2013

We look at the M/T ratio, how to calculate it, how to use it, and everything investors need to consider when using it.

3 Indicators Every Municipal Bond Investor Needs To Know

September 19, 2013

In this article, we ll take a look at three economic indicators that all muni bond investors should know, and how these indicators can be used to make buy, sell or hold decisions.

3 Economic Reports Every Municipal Bond Investor Must Know

September 17, 2013

With these reports, investors will be better equipped to make the right municipal bond investment decisions.

How A City's Bankruptcy Can Affect The Muni Market

September 12, 2013

In this article, we will explore Detroit s bankruptcy and its potential implications on the muni bond market both now and in the future.

The Top 10 Safest Municipal Bonds

September 09, 2013

We look at how an investor can judge the safety of a municipal bond, and outline the safest munis that you can invest in.

What Are Bonds?

July 08, 2013

Bonds are debt instruments that offer a unique set of characteristics and nuances to equities, thereby serving as valuable tools for countless investors looking to diversify their portfolios. This article covers the basic concepts that define the fixed income asset class.

The Basics Of Municipal Bonds

July 01, 2013

Investing in municipal bonds can be a great way for investors to preserve their capital while also generating a flow of generally tax-free interest payment income. This article outlines some of the basics behind municipal bonds and municipal bond investing.

What Are Build America Bonds?

June 24, 2013

This article takes a look at Build America Bonds, how they work, how investors can buy them, and also which ETFs offer exposure to this asset class.

What Is A Municipal Bond ETF?

June 19, 2013

This article takes at look at how Municpal Bond ETFs work and why they offer an attractive alternative for those looking to steer clear of actual bonds.

Municipal Bonds And Taxes: What Investors Need To Know

June 10, 2013

The tax-exemption of municipal bonds is arguably one of the most alluring features of this asset class and rightfully so; this article takes a closer look at the four key tax treatments of municipal debt securities.

What Are Pre-Refunded Municipal Bonds?

May 28, 2013

Pre-Refunded municipal bonds can be a good choice for conservative investors that are looking to further minimize the risks associated with this increasingly popular corner of the fixed income market.

Municipal Bond Insurance Basics

May 20, 2013

For investors wary of defaults, municipal bond insurance offers a way to access this attractive breed of debt securities while still having a peace of mind. This article looks at all the possible ways that investors can secure their municipal bond holdings.

How Broke Is Your State?

April 11, 2013

This visual article takes an interactive tour of each state's budget woes as well as highlighting wasteful expenditures from each one.

Everything You Need To Know About Accrued Interest

April 04, 2013

This article takes an in-depth look at what accrued interest is, how to calculate it, and what it really means for bond investors.

Ultimate Guide To Muni Bond ETFs

March 04, 2013

Accessing municipal bonds is now easier than ever thanks to the proliferation of exchange-traded funds targeting this increasingly popular asset class. This articles takes an in-depth look at the Municipal Bonds universe through an ETF lens.

Where to Buy Bonds

August 22, 2011

You can buy bonds from online brokerages, full-service brokerages, and municipal bond dealers. In this chapter, we go over the advantages of each group.

Bond Funds vs. Individual Bonds

August 22, 2011

If you are considering investing in bonds, you may have also considered bond funds or may already be invested in bond funds. There are substantial differences between owning a bond fund and owning a portfolio of bonds.

A bond fund is comprised of numerous bond issues with varying maturities. When a bond in a fund matures, the fund manager will reinvest the proceeds in a new bond. As a result, there is no finite end date with a bond fund like there is with a bond. You are not guaranteed to get your principal back on a given date.

How Bonds are Sold - Your Transaction Costs

August 22, 2011

Municipal bonds can be bought in one of two ways: You can buy new issues of municipal bonds when they are first bought to market. Or you can buy municipal bonds in the secondary market. A new issue is analogous to an IPO; it is a brand new offering that is sold by underwriters to investors. With municipal bonds, there are a few new issues almost every day; however, there is no consistency in terms of what is or will be available.

Why Do Bonds Fluctuate in Value

August 22, 2011

Regardless of what you paid, the price of most bonds at maturity is par or 100. However, while you own the bond, the bond is going to fluctuate in value based on the current market conditions at any given time. Since bonds have a fixed coupon rate and maturity value, the concept that a bond will fluctuate in value can be perplexing. In this chapter, you will understand one of the reasons why bonds fluctuate in value.

Bond Ladders: A Basic Bond Investing Strategy

August 22, 2011

The decision whether to buy short-term, medium-term, or long-term bonds can be a difficult one. One basic strategy is to build what is known as a bond ladder. This allows you to not commit too much money to any particular maturity year. For instance, if you have $100,000 to invest in bonds, the following would be a basic ladder:

Yield Curve - Should you buy short-term, medium-term or long-term bonds

August 22, 2011

An important concept for you to grasp as a first-time bond investor is the yield curve. In most economic climates, the longer you are willing to tie up your money, the higher the yield you can earn.

This is similar to a car loan or home loan: If you want to borrow money for 2 years, the annual rate you will pay will be lower than if you wanted to borrow money for 10 years. As a lender, which is what you are as a bondholder, you will generally get the benefit of higher yields with longer maturities.

The Basics on Callable Bonds and Yield-to-Call

August 22, 2011

We are going to introduce you to another concept that you need to be aware of before buying a municipal bond. Many municipal bonds are "callable". "Callable" means that the issuer can redeem the bonds earlier than the maturity date (i.e. pay back the bonds). Whether a bond is callable or not will be clearly stated along with the bond's other details.

Understanding Accrued Interest

August 22, 2011

Using the same example bond for sale from the previous chapter, we want to illustrate the concept of accrued interest.

Accrued interest is calculated and owed to the seller anytime you are purchasing a bond in the market other than at the time of original issuance. The concept is easy to understand.

How to Look at a Bond for Sale

August 22, 2011

In this chapter, we are going to go over coupon, yield, price, maturity, ratings, and a couple of other items you will see whenever a bond is offered or available for sale.

Let's assume you are being offered this California State General Obligation bond for sale:

Tax-Exemption from State Income Taxes

August 22, 2011

Happily enough, municipal bonds can also be free of state income taxes. As a general rule in most states, if the bonds are issued in a particular state, it is exempt from that state's income taxes.

For instance, a bond issued by a municipality in New York will be exempt from New York state income taxes. Since there are 50 states plus D.C. and territories such as Puerto Rico, US Virgin Islands, Guam, it is not possible for us to go over examples involving each state. We'll go over some basic concepts and cover the taxation rules of most states.

First, having the benefit of not paying state income taxes on top of not having to pay federal income taxes increases the taxable-equivalent yield even more.

Taxable-Equivalent Yield

August 21, 2011

We covered the basic tax benefit of municipal bonds in chapter 2. The key benefit from municipal bonds is that the interest received from municipal bonds is free from federal income taxes and can be free from state income taxes as well. With municipal bonds, everything comes down to taxes. If you are not going to benefit from the tax-exemption, you will earn more with taxable bonds. For instance, highly rated municipal bonds may actually yield less than even US treasury bonds since US treasuries are taxable. However, based on your tax-bracket, the tax-free municipal bond with a lower yield may offer you a higher after-tax return than the higher-yielding taxable US treasury bonds. You should know how to compare a tax-exempt (tax-free) bond with a taxable bond.

Default Rates of Municipal Bonds

August 21, 2011

As someone interested in buying municipal bonds, safety is and should be your paramount concern. It will help you to know the history of defaults over the past 40 years. The research that we are going to reference is a recent report from Moody's analyzing defaults from 1970-2009. In this report, Moody's looked at every single bond default on municipal bonds rated by Moody's since 1970. Out of thousands of bond issues rated by Moody's over this time period, there have been a total of 54 bond defaults over the past 38 years.

Of the 54 defaults, 3 of the defaults were on general obligation debt.

The Safety of Municipal Bonds

August 20, 2011

Municipal bonds have a strong historical record of timely interest payments and timely repayment of principal. A municipal bond default is a rare event. Even in the depths of the most recent recession, no major US city, state, town, or school district with an investment-grade bond rating has defaulted on their general obligation (GO) debt; the one exception is Jefferson County in Alabama. (To reiterate, a default occurs when a bond issuer misses an interest payment or does not pay the principal exactly on time.) As a broad category, municipal bonds have much lower default rates than corporate bonds.

Next to US treasury bonds and instruments guaranteed by the US government (this includes CDs and bank obligations guaranteed by the federal government), it could be argued that municipal bonds are the next safest category of investment.

Understanding Bond Ratings

August 20, 2011

As we stated in the previous chapter, credit risk should be your paramount concern. One data point to consider when evaluating the credit risk of a potential municipal bond is the bond's rating.

There are 3 major rating agencies that evaluate thousands of issuers and their municipal bonds. The agencies are Standard and Poor's (S&P), Moody's, and Fitch. The ratings agencies assign ratings such as AAA and other ratings we'll discuss below. The objective of the rating agency is to assign a municipal bond a credit rating to make it faster for market participants to evaluate risk. (Think of this in terms a person's individual credit score - it makes loan decisions easier for lenders.) A credit rating performs the same service for institutional borrowers and investors. A bond's credit rating is the rating agency's opinion as to the creditworthiness of the bond's issuer.

Risks of Bond Investing

August 20, 2011

If you are thinking about investing in municipal bonds, you likely have two main investment objectives: Capital preservation and income generation.

Capital preservation means you do not want to lose any money. If you invest a dollar, you want your dollar back at the very least. Income generation means that you want to receive some ongoing interest income on a predictable basis (this is why bonds are also known as "fixed income" securities.) From your bond investments, your goal is to protect your assets as much as possible. You may have a stock portfolio, maybe you even own cattle futures, but your aim with your bond portfolio is to protect your investment principal and sleep well.

Two Types of Bonds: General Obligation vs. Revenue Bonds

August 20, 2011

There are over 80,000 issuers of municipal bonds in the United States. With so many different types of issuers ranging from states to cities, transportation systems, school districts, hospitals, and housing projects, you need to understand two basic types of bonds:

1. General Obligation Bonds

2. Revenue Bonds

When a state, city, hospital or any other issuer issues a bond, the issuer expects to pay back the borrowed money at some point in the future. The issuer guarantees repayment of the money in one of two basic ways:

The 5 Basic Elements of Bond Investing

August 20, 2011

You need to understand 5 basic concepts before you consider investing in bonds. The 5 elements of a bond investment are:

Coupon - Maturity Date - Price - Yield - Amount

Let's start with an example of a generic California State General Obligation bond with the following coupon and maturity date:

The Key Benefit of Municipal Bonds: Tax-Free Interest

August 20, 2011

The interest income earned from most municipal bonds is exempt from all federal income taxes regardless of your tax bracket. This is the most significant benefit of municipal bonds and it is a characteristic unique to municipal bonds. Not even US Treasuries offer income that is free from federal income taxes.

Additionally, municipal bonds can be free of state income taxes as well. In most states, the interest income from municipal bonds issued by an issuer in the state is free from state income taxes in that state.

What are municipal bonds?

August 20, 2011

Municipal bonds are debt issued by local governments, state governments, districts, and other entities that serve a civic purpose. This includes states, towns, cities, counties, school districts, hospitals, transportation authorities, universities and colleges, housing projects, road and highway authorities, water districts, and power districts.

Governments and special purpose entities borrow money to finance infrastructure projects, make capital improvements, and build or make improvements to schools...

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