Municipal bond

A municipal bond, commonly known as a muni, is a bond issued by state or local governments, or entities they create such as authorities and special districts. In the United States, interest income received by holders of municipal bonds is often, but not always, exempt from federal and state income taxation. Typically, only investors in the highest tax brackets benefit from buying tax-exempt municipal bonds instead of taxable bonds. Taxable equivalent yield calculations are required to make fair comparisons between the two categories.

The U.S. municipal debt market is relatively small compared to the corporate market: total municipal debt outstanding was $4 trillion as of the first quarter of 2021, compared to nearly $15 trillion in the corporate and foreign markets. But conversely, the number of municipal bond issuers (state and local governments and other affiliated entities) far exceeds the number of corporate bond issuers.

Local authorities in many other countries in the world issue similar bonds, sometimes called local authority bonds or other names.

History

Municipal debt predates corporate debt by several centuries—the early Renaissance Italian city-states borrowed money from major banking families. Borrowing by American cities dates to the nineteenth century, and records of U.S. municipal bonds indicate use around the early 1800s. Officially the first recorded municipal bond was a general obligation bond issued by the City of New York for a canal in 1812.