Bond prices are determined by the interest rate market in general and the specific maturity date and credit quality of each individual issue. If interest rates in the economy go down, the market value of existing bonds increase and if rates increase the value goes down. In general terms, the longer period of time to maturity the higher the interest rate or yield will be on any individual bond. A bond that matures in 30 years pays a higher rate of interest than a bond that matures in ten years. The better credit rating a bond carries, the lower the interest rate it pays.
Municipal bonds pay interest semiannually.
Interest income from municipal bonds is exempt from federal income tax. While each state's tax code is different, most states also exempt the interest income, for state residents, from municipal bonds issued in that state. Because bonds fluctuate in value during the time they are held as an investment, if bonds are sold prior to maturity, they may be subject to capital gains tax. Our Bond Glossary defines some commonly used terms. Home Find Tax Free Bonds From Every State .