Many high net worth investors purchase municipal bonds as a part of their investment portfolio. State and local municipalities, as well as other entities issue municipal bonds. These bonds can provide a predictable stream of semi-annual interest payments, and a return of the investor’s principal investment at maturity.
The municipal bond market is complex. There is not a central marketplace where all municipal bond trading takes place. GMS has 35 years of experience trading municipal bonds. We work with varies bond dealers to determine fair market prices for municipal bonds. Our expertise allows investors to buy or sell municipal bonds with confidence.
How MUD Bonds Work
One type of municipal bond is a municipal utility district (MUD) bond. These securities are issued by a political subdivision to provide water, sewer, drainage and other services to a particular district. Special assessment bonds fund the utility district's activities. Principal and interest payments on these bonds are backed by taxes on the district's property owners.
MUD bonds provide an essential service to people in the district. Everyone needs the water and sewer services provided by the district. As a result, the district has a predictable source of income to make bond payments.
There are several risks that investors should consider when buying municipal bonds. Default risk is the risk that a bond will not pay interest or not return the principal amount invested. Firms like GMS group have the expertise to assess the creditworthiness of municipal bonds.
An experienced firm can assess the issuer’s history of making timely payments of principal and interest. A municipal bond specialist can also review the value of property in the municipality, and whether or not current property and other taxes are sufficient to make principal and interest payments.
General obligation (GO) municipal bonds are backed by an entity’s ability to tax in a particular municipality. For a MUD bond, principal and interest payments are backed by assessments charged to those in the district. Fees charged by a facility, such as a toll road or sporting venue, support revenue municipal bonds.
Many investors own a portfolio of municipal bonds. The portfolio may include GOs, revenue bonds and other types of bonds. A specialized firm such as GMS can analyze a municipal bond portfolio. We can assess the creditworthiness of each bond in the portfolio. GMS has a ranking system that ranks municipal bonds from conservative to speculative. A portfolio assessment helps an investor understand the creditworthiness of the overall portfolio.
Other Features of Municipal Bonds
GMS specializes in municipal bonds and can explain the unique features of a particular bond. Some bonds, for example, have call features. The bond issuer has the right to pay off the bondholder before the stated maturity date. A call feature is something an experienced firm like GMS can explain to investors. You can consider bonds with a variety of maturity dates.
Investors can purchase bonds that mature in just 1-2 years, or securities that mature in 25-30 years. A GMS municipal bond specialist can help you think about your investing time horizon. You can match the maturity date of your bonds with the date you need the investment dollars. Investors may purchase bonds with a variety of maturity dates. Municipal bonds can provide tax-free income. In some cases, municipal bond interest is free from both state and federal income taxes. Check with a tax advisor to see if income from municipal bonds is tax-free for you. There are several factors you should consider when buying or selling municipal bonds.
Consult with a GMS municipal bond specialist and make informed decisions on your investments. Contact us or call 877-567-9811.