Investment Characteristics of Municipal Bonds
- Higher yield than on government bonds
Municipal bonds usually generate a higher yield than government bonds.
Interest income from municipal bonds is exempt from federal taxes in the US. Investors residing in the state in which the bonds were issued are also exempt from state and local taxes on any interest income from their bonds.
- Bond insurance
In many cases, municipal bonds are also insured by bond insurance companies, thereby providing another level of protection for investors. This subject is explained below in detail.
- Broad variety
There is a broad range of municipal bonds, most of which are rated between AA and AAA.