We Want To Be Your Municipal Bond Authority

How Do Municipal Bonds Work?

The Basics of Investing in Municipal Bonds

The first step towards investing in municipal bonds is to understand the basics of how they work. This includes understanding the investment, getting a feel for the bond market, becoming comfortable with your broker and more. At THE GMS GROUP, our municipal bond specialists have the knowledge and expertise to provide you with detailed information allowing you to make an investment decision that will help in achieving your financial goals.

Some basic elements about municipal bonds that are important to understand are:

  • Interest payments – Usually, interest on a long term bond is paid semiannually, while interest on short-term notes is paid at maturity.

  • Form of issuance – Municipal bonds are issued in registered form only, which means that the investor’s name is registered on the issuer’s books – or its agents’. Virtually all municipal bonds today are issued in “book-entry” form, in which investor ownership is recorded through data entry at a central clearinghouse.

  • Minimum Denominations– Most municipal notes and bonds are issued in minimum denominations of $5,000 or multiples of $5,000.

  • Payment terms – Dealers are required by the Securities and Exchange Commission to receive payment for a securities purchase and to make payment for a securities sale no later than the third business day following the day of the trade.

  • Where to find bond prices – The Electronic Municipal Market Access (EMMA) system and investinginbonds.com provide real-time and historical trade data for municipal bonds. You can also receive price quotes from a municipal securities broker-dealer; prices will vary from dealer to dealer.

  • Marketability – Holders of municipal bonds can sell their bonds through one of the many banks and securities dealer firms that are registered to transact municipal bond buys/sells.

  • Reporting requirements – All tax-exempt interest must be reported on tax returns. This is simply a reporting requirement and does not affect the tax exempt status of the security.

  • What are the costs of investing in municipal bonds? - Municipal securities are bought and sold between dealers and investors much like other debt instruments. The price an investor pays for a municipal bond includes the dealer’s spread between bid and ask or profit.

For more information about municipal bonds and discover which type of bond is best suited for your financial goals, feel free to speak to one of our GMS bond specialists today. You can also learn more about by downloading our special report about the municipal bond market. Contact us or simply call 877-467-0070.