The Diversity of Municipal Bonds and What You Need to Know About Risks
by Robert Doty
The Securities and Exchange Commission (SEC) estimates that there are 50,000 municipal securities issuers, and the Municipal Securities Rulemaking Board (MSRB) 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) website maintained by the MSRB at emma.msrb.org. That website is a valuable resource.
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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Discussion
If you really want to know about bonds, especially munis, buy the book: Bonds, The Unbeaten Path to Secure Investment Growth by Hildy and Stan Richelson. Published in 2011; it's the bible.
posted 10 months ago by Charles from Washington
It would be helpful to know if there are any ETFs that invest primarily or exclusively in Municipal General Obligation Bonds.
Suggestions welcomed.
posted 9 months ago by Gary from Colorado
I have both of their books. They are great for bond info.
posted 9 months ago by Don from Pennsylvania
It's nice to know there exists this kind of useful info. about Munis.
Is there a source that lists the risk factor of any particular bond?
posted 4 months ago by Richard O'reilly from California
Which states prohibit bankruptcy of their municipalities?
posted 4 months ago by C Kennison from Florida
I would like to buy some individual municipal bonds. Is there an active market for them where I can buy them? If so where? I do not want a mutual fund through a stock brocker.
posted 4 months ago by Darryl from Massachusetts
where are answers to the questions? Do we have ETF's for Bonds?
posted 3 months ago by Sagar from Connecticut
Sagar,
Our ETF guide has a complete listing of exchange-traded funds, including muni bond ETFs. You will have to look at each fund to determine exactly the type of muni bonds the portfolios hold, however.
http://www.aaii.com/guides/article/etf-guide-2012
-Charles
posted 3 months ago by Charles Rotblut from Illinois
