Municipal Bond Letters Bonds are fixed income paying IOUs, or promises to pay. Bonds differ from stocks in that a bond issuer borrows money at a fixed interest rate promising to repay the amount borrowed on a specific date in the future accompanied by semi annual interest payments accruing from the issue date up to and including the maturity date.
Stocks represent ownership while bonds represent debt.
Municipal bonds are fixed income investments that pay interest exempt from Federal income tax and, in most cases, state income taxes as well. Municipal bonds are issued in a variety of types and for different purposes by states, state agencies, counties, cities, school districts and other governmental agencies entitled to issue such debt. Not for profit organizations such as hospitals are also entitled to issue tax-free bonds. An investor purchasing a municipal bond is loaning money to the issuer, much like when a bank loans money to homebuyers, to finance a particular project. An issuer gives the investor its bond evidencing its promise to repay the money and details the rate at which interest will be paid, when the issuer may retire the bond prior to maturity, the name of the interest paying agent.