Why do cities issue bonds

Bond investors typically seek a steady stream of income payments and, compared to stock investors, may be more risk-averse and more focused on preserving, rather than increasing, wealth. Given the tax benefits, the interest rate for tax-exempt municipal bonds is usually lower than on taxable fixed-income securities such as corporate bonds with similar maturities, credit qualities and other items. In addition, municipal borrowers sometimes issue bonds on behalf of private entities such as non-profit colleges or hospitals.

In cases where the conduit borrower fails to make a payment, the issuer usually is not required to pay the bondholders. Get access to:. Note that many issuers maintain websites or webpages specifically for investors in their municipal bonds.

Some issuers hyperlink to those webpages from their homepage on EMMA. Learn how to find issuer homepages on EMMA. The MSRB is a self-regulatory organization whose mission is to protect investors, state and local governments and other municipal entities, and the public interest by promoting a fair and efficient municipal securities market.

Use their Contact Form. As with any investment, investing in municipal bonds entails risk. Investors in municipal bonds face a number of risks, specifically including:. Call risk.

Call risk refers to the potential for an issuer to repay a bond before its maturity date, something that an issuer may do if interest rates decline -- much as a homeowner might refinance a mortgage loan to benefit from lower interest rates.

Bond calls are less likely when interest rates are stable or moving higher. Credit risk. Credit ratings are available for many bonds. How does the tax system subsidize child care expenses?

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What Are Municipal Bonds? How Municipal Bonds Work. Types of Municipal Bonds. Credit Risk Levels of Municipal Bonds. Tax Bracket Changes. Call Risk. Market Risk. Buying Strategies. Evaluating Stability vs. Key Takeaways Municipal bonds are good for people who want to hold on to capital while creating a tax-free income source. General obligation bonds are issued to raise funds right away to cover costs, while revenue bonds are issued to finance infrastructure projects. Both general obligation bonds and revenue bonds are tax-exempt and low-risk, with issuers very likely to pay back their debts.

Buying municipal bonds is low-risk, but not risk-free, as the issuer could fail to make agreed-upon interest payments or be unable to repay the principal upon maturity.

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Corporate Bonds Prospectus of Corporate Bonds. Partner Links. Related Terms Gross Revenue Pledge Definition Gross revenue pledge is a stipulation in a municipal bond indenture that compels the issuer to use the bond's revenue to service the debt first. What Is a Catastrophe Call? A catastrophe call is a call provision in municipal bonds allowing for an early redemption if a catastrophic event occurs that causes damage to the project being financed. Special Tax Bond Definition A special tax bond is a type of municipal bond that is repaid with revenues derived from a tax that is levied specifically for that purpose.

Net Revenue Pledge Net revenue pledge requires the issuer of a municipal bond to use generated revenues to service debt costs after satisfying operational expenses.