Munis

Munis is a common shorthand for municipal bonds, which are debt securities issued by states, municipalities, or related authorities to fund public projects such as schools, highways, water systems, and hospitals. These securities allow public entities to borrow money while spreading repayment over time, often at favorable terms relative to private lending.

The two main types are general obligation bonds and revenue bonds. General obligation bonds are backed by the issuer’s taxing power and credit, making them generally considered lower risk. Revenue bonds are repaid from the revenues generated by a specific project or source, such as a toll road or a utility system, and carry higher credit risk depending on project viability. There are also conduit issues and private-activity bonds, which can have different tax and regulatory considerations.

Tax treatment is a defining feature of munis. Interest on most municipal bonds is exempt from federal income tax, and, for residents of the issuing state, may also be exempt from state and local taxes. Some bonds, particularly certain private-activity issues, may be subject to the federal alternative minimum tax. The after-tax yield is a key consideration for investors in higher tax brackets.

Markets and investment vehicles include direct purchases, as well as mutual funds and exchange-traded funds that specialize in munis. Prices are influenced by interest rates, credit quality, and duration, and many issues are callable. The municipal securities market is regulated by the Municipal Securities Rulemaking Board and overseen in part by the Securities and Exchange Commission.