What are some of the key features of municipal bonds?

  • Interest Rate - The issuer pays interest to bond investors in exchange for the use of the loaned money. The interest rate is a percentage of the principal (the amount borrowed/invested), accruing over a specified period (typically, semiannually). Interest rates vary depending on the term and prevailing bond market conditions and may be fixed or variable. Fixed interest rates are set on the pricing date.

  • Price - The price is the amount investors are willing to pay for a bond initially or in the secondary market. Price is based on certain variables, including current market yields, supply and demand, credit quality, term to maturity, and tax status. Price and yield move in opposite directions. When market yields increase, the price or value of a bond decreases, and vice versa.

  • Yield - The yield refers to the rate of return an investor earns on the bond based on the price and interest rate. Yield can be calculated in different ways to reflect differing assumptions and investors should consult their brokers or financial advisors to learn more about yield.

  • Maturity Date - Maturity date refers to the date when the principal on the bond is scheduled to be repaid to the investor.

  • Redemption Provisions - Some bonds contain provisions that allow the issuer to redeem or "call" all or a portion of the bonds or notes, at specified prices, prior to their stated maturity date. 

  • Ratings/Credit - A credit rating is an evaluation of an issuer's credit quality based primarily on its current and projected financial and economic conditions.  A credit rating is an independent assessment of the creditworthiness of the bonds.  It measures the probability of timely repayment of principal and interest of a bond or note.  Higher credit ratings indicate the rating agency’s view that there is a greater probability the investment will be repaid. Most bonds are rated by one or more of the three major rating agencies: Standard & Poor’s, Moody’s Investor's Service, and/or Fitch Ratings. Investors are advised to obtain and review the credit reports associated with a bond offering prior to making an investment decision.

  • Denominations - fixed interest rate bonds are typically sold in a minimum denomination of $5,000 and whole multiples thereof.

  • Debt service - refers to the payment of principal and interest on outstanding bonds.