SIE (Training Consultants v3.5, 2025): Ch. 2 Debt Securities, Sec. 8 – Municipal Bonds

Municipal Bond (Muni)

Debt issued by state/local governments (cities, counties, school districts, authorities); interest generally exempt from federal income tax and possibly state/local tax.

General Obligation (GO) Bond

Municipal bond backed by full taxing power of the issuer; often requires voter approval; also called “full faith and credit” bond.

Revenue Bond

Municipal bond backed by revenues from a specific project or facility; does not require voter approval; not paid from taxes.

Industrial Development / Industrial Revenue Bond

Revenue bond issued on behalf of a corporation to finance facilities; principal and interest paid solely by the corporation; tax-exempt to investors but substantial users may be taxed.

Taxable Equivalent Yield

Yield calculation to compare tax-exempt municipal bonds to taxable corporate bonds: Municipal Yield ÷ (1 – Investor Tax Rate).

Alternative Minimum Tax (AMT)

Tax system applied to “tax preference” items; may apply to some private-purpose municipal bonds.

Official Statement (OS)

Disclosure document for a new municipal bond issue; similar to a prospectus; provides detailed financial information.

Negotiated Deal

Municipality hires a managing underwriter to distribute a new issue; interest rates and terms are negotiated directly.

Competitive Bid

Municipality requests sealed bids from underwriters; awards bonds to lowest net interest cost (NIC).

Municipal Notes

Short-term municipal debt for interim financing (e.g., TAN, RAN, TRAN, BAN, GAN).

Build America Bonds (BABs)

Taxable municipal bonds for infrastructure projects; interest taxable to investors but partially subsidized by federal government.

Municipal Fund Securities

Investment products like Local Government Investment Pools (LGIPs), ABLE Programs, and 529 Plans; may be sold directly or via advisers.

MSRB Rule G-37

Limits political contributions by Municipal Finance Professionals (MFPs) or dealers to $250 per election to officials of issuers; violations result in a 2-year ban on municipal business.

Municipal Variable Rate Securities

Municipal debt with floating interest rates, including Variable Rate Demand Obligations (VRDOs), Floating Rate Notes (FRNs), and Auction Rate Securities (ARS); some offer a “Put” feature.

What are municipal bonds?

Debt issued by state/local governments; interest is usually exempt from federal income tax and possibly state/local taxes.

What backs General Obligation (GO) bonds?

Taxes collected by the issuing municipality; also called “full faith and credit” bonds.

What backs Revenue Bonds?

Revenues from a specific project or facility; not paid from taxes.

What are Industrial Development Bonds?

Revenue bonds issued on behalf of corporations to finance facilities; debt paid by the corporation.

How do you calculate taxable equivalent yield?

Municipal Yield ÷ (1 – Investor Tax Rate).

What is the Alternative Minimum Tax (AMT)?

A tax ensuring high-income taxpayers pay some tax; may apply to private-purpose municipal bonds.

What is an Official Statement (OS)?

Disclosure document for a new municipal bond; contains detailed financial information; similar to a prospectus.

What is a Negotiated Deal in municipal bonds?

When a municipality hires a managing underwriter to negotiate terms and distribute a new issue.

What is Competitive Bidding?

Municipality requests sealed bids from underwriters; awards bonds to the lowest net interest cost (NIC).

Name some types of Municipal Notes.

Tax Anticipation Notes (TAN), Revenue Anticipation Notes (RAN), Tax & Revenue Anticipation Notes (TRAN), Bond Anticipation Notes (BAN), Grant Anticipation Notes (GAN).

What are Build America Bonds (BABs)?

Taxable municipal bonds for infrastructure; interest partially subsidized by federal government.

What are Municipal Fund Securities?

Investment products like LGIPs, ABLE programs, and 529 Plans.

What is the MSRB Rule G-37?

Limits political contributions by MFPs/dealers to $250 per election to issuer officials; violations cause a 2-year municipal business ban.

What are Municipal Variable Rate Securities?

Debt securities with floating interest rates (VRDOs, FRNs, ARS); some offer a “Put” feature. #