Municipal bonds are debt obligations issued by states and local government to raise money for general purposes or to finance a specific project. Municipal bond investors receive a fixed tax-free interest payment semi-annually with the return of their principal on a specific maturity date. Unless otherwise specified, municipal bond obligations are exempt from all federal income taxes, are usually also exempt from state and local taxes in their state of issuance.
The municipal bond market is compressed of 2 closely markets; the primary market and secondary market. In the primary market dealers such as Stoever Glass buy new issues. The secondary market is made up of bonds that have been bought and resold. The secondary market is the much larger of the two. And it is where sophisticated investors shop for bargains.
Tax free muni bonds are a popular choice among investors. But tax exempt municipal bonds are more in demand than ever during unpredictable economic times. In addition to the tax-free status municipal bonds enjoy, the safety they provide is doubly in demand and during periods of increased stock market volatility.
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Taxable Municipal Bonds
A very tiny portion of municipals are taxable debt obligations. They are an outgrowth of the Tax Reform Act of 1986, which put certain restrictions on the issuance of traditionally Tax-Exempt Securities. A taxable Municipal Bond is issued as a Private Purpose Bond to finance Public Purpose projects where the 10% private use limitation has been exceeded.
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