Very often the bond ratings are low because there is a chance that the bond will not be paid off. If that were the case, the bondholder would lose all his or her money. High-yield bonds are risky investments and their value can move up and down swiftly. Municipal bonds are graded along the same scale, but are not usually broken out by high quality or low quality. Basically, a municipal bond is a bond that a local town, city, or state has issued.
Some municipalities are more financially sound then others, and, as such, get higher bond ratings.
At times you will hear a bond described as insured. You may also hear of bonds that are pre funded or pre paid. Again, this is just like what it sounds. The issuer of these bonds has put aside money with which to pay these bonds, and there is little concern that these municipal bonds will not be paid off. Government notes are bonds issued and backed by the United States government.