Municipal Bonds Contain New Investor Risks

For nearly all of its history, municipal bonds have been regarded as one of the safest investments that one could make. After all, general obligation government bonds are backed by the taxing power of a given jurisdiction. If you buy a United States bond, your likelihood of being paid interest and later your principal is based on the ability of the United States government to tax over 300 million. If you buy a bond issued, say, by the state of Texas, your likelihood of being repaid is determined by the Texas state government’s ability to tax 27 million people.

The same principle extends to cities and counties that choose to issue general obligation bonds. You are forward a certain amount of principal (often in $1,000 or $10,000 increments) in exchange for a promise to receive interest (usually paid semi-annually) and certain tax relief plus a return of principal (usually at … Read the rest of this article!