These bonds carry a high rate of return as compensation for the possibility of default. Investors usually purchase corporate bonds as long-term investments. Municipal Bonds are bonds issued by state and local government units to fund different types of public works. They are generally regarded as safe because state and local governments do not go out of business. Because governments have the power to tax, it is presumed that they can pay interest and principal in the future.
Municipal bonds are generally tax-exempt.
This allows the governmental unites to pay a lower rate of interest on the bonds, thus lowering their cost of borrowing. The government pays the interest on these bonds, but it builds the interest into the redemption price rather than sending checks to the investors on a regular basis. Savings bond s are attractive because they are easy to obtain and there is virtually no risk of default. Most investors tend to hold long-term savings bonds. Like the United States, many other nations issue bonds, although they are generally available only in large denominations.