These are debt securities issued by state or local governments to pay for ongoing products such as roads, schools, and airports. When state and local governments issue securities, they are one of two types: general obligation bonds or revenue bonds. In general, municipal bonds are safe investments, although defaults do occasionally happen. Insurance can be purchased on these bonds if defaults are a concern. One advantage of municipal bonds over many other types of investments is that the interest earned on them may be exempt from federal U.S. taxes. This generally depends on how the money from the sale is used; however, capital gains from these sales are generally subject to taxes.
General obligation bonds are backed by the taxing power and credit of the government.
Revenue bonds are backed by profits from the project for which the bond was issued.
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