1.1.  Unique Features of Municipal Bonds

Municipal bonds (munis) are issued by states, cities, and counties to raise capital for their day-to-day operations. They are also issued by school districts, highway departments, and other public authorities to finance specific projects, such as public education, highway construction, football stadiums, and mass transit systems. Puerto Rico, Guam, and other U.S. territories may also issue municipal bonds.

Municipal bonds come in two basic types: general obligation bonds and revenue bonds. The two types are distinguished by how they are funded.

Revenue bonds are secured bonds, meaning that they are collateralized by an asset of the issuer. Should the issuer default on its payments, the investors in a secured bond have a claim on its assets, which they can use to recover their investments. Revenue bonds generally finance specific projects and are funded by the revenue stream generated by the project.

General obligatio