Municipal bonds are a type of bond that is issued by local or state governments to raise money for public projects and infrastructure. These bonds are typically used to finance public works such as roads, bridges, schools, hospitals, and other essential services. They are also known as "munis" in the financial industry.
Municipal bonds are often seen as a safe investment because they are backed by the creditworthiness of the issuing government entity. This means that if the issuer is unable to make payments on the bond, it could result in a default, which would have negative consequences for the government's finances and its ability to borrow money in the future.
Investors who purchase municipal bonds receive regular interest payments over the life of the bond, as well as receiving the full face value of the bond back when it matures. Because these bonds are exempt from federal income taxes, they can offer a higher yield than other types of bonds for investors in high tax brackets.
Overall, municipal bonds provide an important source of funding for public projects and services while offering a relatively safe and tax-advantaged investment option for individuals and institutions.