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How Safe are Municipal Bonds?

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The safety of municipal bonds is typically determined by the issuer’s ability to meet its financial obligations.

Of all fixed income investments, issuers of municipal bonds, with the exception of U.S. Treasury securities, have the best safety record of meeting interest and principal payments in a timely manner. Municipal bond issues disclose the details of their financial condition through “official statements” or “offering circulars”. Official statements are available through the Municipal Securities Rulemaking Board’s Electronic Municipal Market Access (EMMA) portal. They can also be obtained from your bank, brokerage firm, or on the Internet.

Additionally, a municipal bond issuer can be evaluated by examining its credit rating. Many bonds are graded by ratings agencies such as Moody’s Investors Service, Standard & Poor’s and Fitch Ratings. A number of banks and firms have their own municipal bond research departments. Credit ratings supplied by rating agencies should not be the sole basis for any investment decision.

Bond ratings are important benchmarks. They reflect a professional assessment of the issuer’s ability to repay the bond’s face value at maturity. Generally, bonds rated BBB (Standard & Poor’s and Fitch Ratings) or Baa (Moody’s) or better are considered to be “Investment Grade” or suitable for preservation of municipal bond investment capital.

In general, as with any fixed-income investment, the higher the yield, the higher the risk. Tax-exempt municipal bonds offer investors the chance to maximize their after-tax return consistent with the amount of risk they’re willing to accept.

Before purchasing a municipal bond, you should talk with your investment advisor or have a municipal bond specialist from GMS provide you with additional information. Download and review the GMS Booklet “How Safe are Municipal Bonds” for additional details. Contact us today or call 877-467-0070.