The Diversity of Municipal Bonds and What You Need to Know About Risks
by Robert Doty
The Securities and Exchange Commission (estimates that there are 50,000 municipal securities issuers, and the Municipal Securities Rulemaking Board estimates that there are 80,000. Municipal issuers include states, agencies, cities, counties, school districts, fire districts and a host of special districts, agencies and authorities. It can be difficult to make sense of so much diversity.
In reality, the municipal market consists of two vastly different markets. One market is for traditional municipal securities that are very sound and secure, with extremely low default risks. The other is a market of readily identifiable riskier securities. Since the riskiest municipal securities can be identified readily in advance, there is no need for investors to be alarmed.
In this article
- Diversity of Municipal Bond Structures
- Chapter 9 Bankruptcy
- Identifiable Factors Suggesting Need for Careful Review
- Investor Information Resources
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To know what you are buying requires reading official statements (prospectuses) and continuing disclosure filings made by municipal issuers and private borrowers. Those documents are available at the Electronic Municipal Market Access emma.msrb.org. That website is a valuable resource.website maintained by the MSRB at
Diversity of Municipal Bond Structures
It is important to understand varying municipal securities structures and their strengths and weaknesses—general obligation (GO) bonds, general fund securities (which are quite different from GO bonds), special tax bonds, and varying types of revenue securities.
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