Investing In Municipal Bonds: Understand The Issuers Needs

If you are looking for an interest only return on capital, investing municipal bonds might be the answer for you. A municipal bond is a special bond where you are actually lending your money to the issuer for a set number of interest payments for a specified period of time. At the end of the duration of the term, the issuer must then pay the complete amount of the original investment.

Before you go investing municipal bonds, you will need to understand their needs and a few of the risks involved.

Credit Risks

Before purchasing the bond you should realize whether or not the issuer will be able to pay the interest payments of the initial investment upon completion of terms. Use an agency like Moody's Investors Services to help you determine the credit risk of an issuer.

Early Pay Risk

Determine if the issuer is going to need to pay back the investment sooner than the allotted term. They might not be able to pay the entire length of the term so they will pay the entire investment back in order to save money.

Does Issuer Need Long Term Rates?

The issuer may not be able to pay large amounts of interest in the short term, but can over a length of time. Find out whether or not the issuer will need to have a longer period of time to pay back the investment.

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