These bonds are typically high-quality and very liquid. Most agency bonds are taxable at the federal and state level. Some are fully backed by the U.S. government, making their credit risk lower than other types of bonds.
How To Buy Municipal Bonds Directly
These bonds are issued by companies, and their credit risk ranges over the whole spectrum. Interest from these bonds is taxable at both the federal and state levels. Because these bonds aren't as safe as government bonds, their yields are generally higher.
Although the income from a municipal bond fund is exempt from federal tax, you may owe taxes on any capital gains realized through the fund's trading or through your own redemption of shares. For some investors, a portion of the fund's income may be subject to state and local taxes, as well as to the federal Alternative Minimum Tax.
Important Note:
This website is not an offer to sell or the solicitation of an offer to purchase bonds or notes. Bonds or notes may only be purchased through a broker and through an official statement.
Maryland general obligation bonds cannot be purchased directlyfrom the State. You must purchase Maryland bonds from a broker,either during a retail sale (when the bonds are originally sold bythe State) or on the secondary market (where investors sell to eachother). To learn about future retail sales, periodically visit here.
The State of Maryland's general obligation bonds have beenassigned the highest credit rating by Moody's Investors Service,Inc. (Aaa), Standard and Poor's (AAA) and Fitch Ratings, Inc.(AAA). More details can be found here.
Maryland general obligation bonds are issued in denominations of$5,000 each and can be purchased in any integral multiple thereof.This is the par value of the bonds. However, depending on variousmarket related factors, your purchase price could be at a premiumor discount to the par value, meaning the purchase price could besomewhat above or somewhat below the actual par value.
Both the coupon rate and the yield of a bond are important whenconsidering how much interest a bond pays. Many of Maryland'sgeneral obligation bonds are structured with a 5% annual couponrate, though the coupon rate can vary and be higher or lower than5%. Maryland's general obligation bonds also are usually structuredso interest is paid semiannually and the coupon rate does notchange and is known from the time the bonds are sold. However, theyield, or what is often thought of as the income rate of return, ofa specific Maryland bond will vary depending on many differentmarket related factors, including whether the bond is purchased ata premium, discount or par.
Maryland general obligation bond issuances are normallystructured with anywhere from two to 15 year maturities, so that aportion of the overall bond sale matures annually. By law,Maryland's general obligation bonds must mature within 15 years.This means that on the secondary market maturities of Marylandgeneral obligation bonds could vary anytime from very near term to15 years from the most recent sale.
In addition to Maryland general obligation bonds, State agenciesalso issue bonds. For instance, there are ConsolidatedTransportation Bonds and Bay Restoration Bonds. Proceeds from theCommunity Development Administration Bonds are used to makemortgage loans, primarily to first time home buyers. The MarylandHealth and Higher Education Facilities Financing Authority (MHEFFA)uses bond proceeds to build hospitals and educational institutions.The University System issues bonds to finance higher educationfacilities. Finally, many local governments in Maryland also issuebonds. You should check with your broker about the rating of thesebonds and about any special call provisions.
Official Statements provide valuable information on generalobligation bonds that have been recently sold by the State. TheOfficial Statements also include important financial and economicinformation about the State that was current at the date of theOfficial Statement. Official statements for Maryland generalobligation bonds can be found here. You can also call the StateTreasurer's Office at 410-260-7155 with any questions.
Continuing financial information for the State of Marylandgeneral obligation bonds is available here andon the EMMA website for theMunicipal Securities Rulemaking Board, where market activityrelated to the bonds may also be found.
In order to purchase Chicago Social Bonds you must have an account with one of the brokerage firms listed below. Please review the list to confirm if you have an account. If you already have an account we recommend you reach out to your broker directly or contact them at their number listed below. If you do not have an account with one of the listed banks, you may reach out to Fidelity at: (800) 544 5372 or online at www.Fidelity.com, who can help you to open an account and learn more about purchasing Chicago Social Bonds.
In March 2020, investors pulled a record $45 billion from muni funds. Municipal bond prices dropped, and the yield on muni bonds rose sharply above the yield on comparable U.S. Treasuries. The yield on muni bonds typically is about 80% of that of U.S. Treasury bonds, reflecting the fact that interest on the former is exempt from federal income taxes and interest on the latter is taxable. By the end of March, muni yields were nearly four times that of Treasuries.
In addition, the Fed launched the Municipal Liquidity Facility (MLF) in April 2020 to lend up to $500 billion directly to states and local governments with populations above a certain threshold; the list of eligible borrowers was later expanded to include more issuers. However, only the state of Illinois and the New York MTA made use of the program, borrowing $3.2 billion and $3.36 billion, respectively. The MLF stopped lending on December 31st, 2020, after Treasury Secretary Steve Mnuchin withdrew Treasury support.
Traditionally, municipalities have sold bonds through competitive sales and negotiated sales. In a competitive sale, bids from interested buyers are opened at the advertised time and place, and the issuer awards the sale to the successful bidder by a sale resolution or an award order signed by an authorized official.
In a negotiated sale, the issuer typically selects a bond underwriter, which markets the bonds. The issuer and the underwriter then negotiate the terms of the bond, and the closing occurs about one to two weeks later.
These advantages make BDPs an attractive option for municipalities. In BDPs, the interest rate may be a fixed or variable rate, as agreed between the issuer and bank. The term of the bonds may range from under 10 years to 15 years, as agreed between the issuer and bank. The bonds may or may not be tax-exempt bonds for federal income tax purposes.
But in fixed income, what goes down in price must go up in yield. Nominal municipal bonds featured a yield to maturity of 2.79% as of July 31.1 That presented attractive valuations both relative to other bond sectors and from a historical perspective. In the past ten years, muni yields have only been higher 13% of the time within daily observations. With a AAA Muni yield/Treasury ratio of 97% at 30 years, tax-exempt debt is particularly attractive in the long end of the yield curve.
Depending on an investor's state and federal income tax brackets and the particular investment, the investor's tax-equivalent municipal yield may be higher than 5%. For investors in higher-tax states like California and New York, taxable-equivalent yields of corresponding state indexes may be nearly 5.75% for CA, or higher for NY.
The municipal market, despite its idiosyncratic nature, is much influenced by U.S. Treasury yields. When Federal Reserve officials signaled their commitment to fighting inflation early this year, investors began pricing in some 11 to 13 quarter-point expected interest rate hikes through 2022, which upended the fixed income markets. Municipals were no exception.
Typically, a significant risk-off event is required to reach current yield levels, such as an economic recession. Such conditions threaten downgrades or even defaults. But in today's environment, municipal credit has been bolstered by federal fiscal stimulus provided directly both to municipalities as well as to end consumers.
State and local income tax revenues have risen at a velocity not seen in 20 years, easing near-term credit concerns. Issuers have used some of the flood of finances to build up their rainy-day funds, which can be a cushion for meeting budgets even during recessionary or otherwise difficult conditions. All of which means that credit conditions are better than they have been in years. Such measures will likely safeguard municipal bond valuations relative to other credit sectors (like U.S. corporates) in the event of a downturn.
However, the bond market has already factored in an aggressive Fed rate-hiking campaign. While there is substantial uncertainty around Fed policy in 2023, longer term yields seem to be settling close to the Federal Reserve's long-run neutral rate of 2.5%. If markets calm around these levels, it could create a technical tailwind for municipal bond pricing as cash that left tax-exempt funds earlier in 2022 may return.
With yields as high as they are, municipal bond funds offer a buffer against yields rising even further. A muni bond fund with a yield of 2.79% and a duration of 6 years, would still provide a positive return for the next 12 months even if yields were to rise another 40 basis points across the curve.
Telephonic public approval hearings permitted permanently (April 8, 2022)
The IRS has released Revenue Procedure 2022-20, which provides guidance regarding the public approval requirement under Section 147(f) of the Internal Revenue Code for tax-exempt qualified private activity bonds. For more information, review the April 8, 2022 newsletter.
Qualified and Specified Tax Credit Bonds - General FAQs
Qualified tax credit bonds allow quarterly tax credits to bondholders, specified tax credit bonds provide a direct payment to the issuer instead of a tax credit to bondholders
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