Question

Describe Municipal bonds, how are they used by government and municipalities, also how do they work for clients accounts. Please do some quick research and find some current municipal bonds, please make sure and include an analysis of the risk of municipalities as borrowers and the public as lenders.

BE SPECIFIC

Answer 1

Hello there,

Municipal bonds are the bonds or debt securites issued by the state government and central government of a country in order to raise fund for projects like roads, airport, railway station, schools and others. Municipal bonds also known as Muni bonds may be looked as loan given to local government by the investors.The money borowed from public is utilized for the public and money alongwith the interest is returend to the public.

Interest on some municipal bonds are federal tax emempt and some are taxable.

Examples of Current Municipal bonds

1. Muni National Interm

2. Muni National Short

3. High Yield Muni

Risk Involved in Muni Bonds

In my Opinion, there is very low risk involved in ubying municipal bonds and thhe money is borrowed by the government as default in repayment by a government of a country means economy of that country is into hell.

As oer historical data, the return from municipal bonds have been much higher as compared o other riskier bonds available in the market.

However, it is not without risk, the risk of buying municipal bonds are as under:

1. Sensitive to interest rate change

Since the average duration of muni bonds is longer, it is ensitive to any interest rate change or in US monetary policy.

2. Market size of Muni Bonds is small

The market size of Muni bonds is relatively small as compared to the for other securities, making is less liquidated.

Trust the above clarifies