Municipal Bonds: Investing While Supporting Local Projects

Municipal bonds, or "munis," are issued by states, cities, and other local government entities to fund public projects. They come in two types: general obligation bonds, backed by the issuer's credit and taxing power, and revenue bonds, backed by specific project revenues. Interest earned is often exempt from federal income taxes and, in some cases, state and local taxes.

Bond duration measures a bond's sensitivity to interest rate changes. It represents the weighted average time it takes to receive the bond's cash flows, including interest payments and return of principal. Duration helps investors assess a bond's price volatility and interest rate risk.

A bond rating is an evaluation of a bond's creditworthiness, indicating the issuer's ability to meet its debt obligations. Ratings are assigned by credit rating agencies based on financial strength, repayment history, and economic conditions. Common rating agencies include S&P, Moody's, and Fitch.

Corporate bonds are issued by companies, whereas government bonds are issued by national or local governments. Corporate bonds typically offer higher yields to compensate for the higher risk of default compared to government bonds, which are considered safer, particularly those issued by stable national governments.

Bonds can be purchased through brokerage accounts, bond funds, or directly from the issuer in some cases (such as Treasury bonds through the TreasuryDirect website). When buying individual bonds, it's important to consider the bond's maturity, yield, and the credit rating of the issuer.

The coupon rate is the interest rate the issuer agrees to pay each year, based on the bond's face value. The yield is the actual rate of return based on the current market price of the bond, which can fluctuate due to changes in interest rates and the issuer's creditworthiness.

Central banks use monetary policy to manage the economy by:

• Controlling Interest Rates: Setting benchmark interest rates, adjusting lending rates, and managing credit conditions to influence borrowing, spending, and investment.
• Managing Money Supply: Regulating currency circulation, liquidity, and credit availability to stabilize prices, support economic activity, and maintain financial stability.
• Supporting Employment: Promoting full employment, reducing unemployment, and fostering job creation through monetary stimulus and credit easing measures.
• Ensuring Financial Stability: Monitoring banking systems, regulating financial institutions, and safeguarding market integrity to prevent crises, bubbles, and systemic risks.

By using monetary policy tools effectively, central banks can influence interest rates, money supply, and credit conditions to achieve macroeconomic goals and maintain economic stability.

A bond index is a benchmark that tracks the performance of a specific group of bonds, such as government bonds, corporate bonds, or municipal bonds. Bond indexes provide a reference point for measuring the performance of bond investments and can be used to create passive bond investment strategies.

To rebuild your credit after debt management, focus on making on-time payments, keeping credit card balances low, avoiding new debt, and monitoring your credit report for errors. You can also consider using a secured credit card, becoming an authorized user on someone else’s account, or seeking credit counseling to improve your credit score over time.

A bond ladder is an investment strategy that involves purchasing bonds with varying maturity dates. This approach spreads the risk of interest rate fluctuations and provides regular income streams as bonds mature at different times. Investors can reinvest the principal from matured bonds into new bonds, potentially capturing higher yields.