What is the US Municipal Bond Market?

Tim Skeet

35 years: Debt capital markets

Tim provides a brief overview of muni bonds: who issues them, why investors choose to invest in them, and how these differ to revenue bonds.

Capital Markets

Tim provides a brief overview of muni bonds: who issues them, why investors choose to invest in them, and how these differ to revenue bonds.

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What is the US Municipal Bond Market?

2 mins 15 secs

Key learning objectives:

Identify who issues Muni bonds
Explain the uses and benefits of Muni bonds
Describe how they are issued (GO, Revenue)

Overview:

A Muni Bond market is an organised market with its own peculiarities. It’s a $4 trillion-dollar market and has a fully-formed ecosystem of underwriters, dealers, rating agencies, advisors and investors.

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Summary

Who issues Muni bonds?

Cities
Counties
Communities
School districts
Public infrastructure bodies
Utilities

What are the uses of Muni bonds?

The proceeds can go to; building or improving public buildings, including schools, hospitals and affordable housing. Also, transport infrastructure such as building or improving road, rail, port and air transport. Further to this, they can go toward financing environmentally-sustainable projects which improves the fabric of local communities.

Why are they popular amongst investors?

Interest income from coupon payments can benefit from federal and/or state and local tax-exemption From a credit perspective, municipal bonds have a lower default rate than corporate bonds with a similar rating.

How are Muni bonds issued?

General Obligation bonds (GO Bonds):

These are unsecured obligations of the issuer. Investors will buy GO bonds based on their assessment of the creditworthiness of that issuer and their own risk appetite.

Revenue Bonds:

These are bonds whose cash flows are derived from the projects they have financed. Examples include, road, bridge tolls and/or airport fees, or rents.

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Tim Skeet

Banker with more than 35 years experience in the financial markets. Tim has been an ICMA board member and an ECBC steering committee member. Tim is a Freeman of the City of London.

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