Municipal bonds are debt securities issued by states, cities, counties and other governmental entities to fund day-to-day obligations and to finance capital projects such as building schools, highways or sewer systems. On the other hand, bonds are those which are issued by private corporations. Municipal bonds have a lower interest rate to corporate binds because they carry a lower risk of default because they have the backing of the local government.
Also, yields on a municipal bond is usually exempt from federal taxes, but there may be state or local taxes depending on your state. Some states give tax exemption to individuals that purchase bonds issued by their states or localities. On the contrary, yields on corporate bonds are taxed.