The question which most of us confront is how safe are municipal bonds. One has to be pretty clear in their thoughts while investing in them. In this regard the junk mini bonds carry the most amount of risks as their ratings is on the lower side or they have no ratings at all to be precise. The chances of default of such type of bonds tend to be on the higher side. On the other side of the coin they offer better tax free options and attractive rates of interest which are much better than the treasuries are provided. The investors need to weigh the pros against the cons and then decide the course of investment to be followed.
When the question how safe are municipal bonds are considered, then the bonds with the longest term of maturity are less likely to bring in more yields to be honest. The key is to opt for intermediate bonds which have a maturity of 7 to 10 years and not much difference in yield is seen in the above cases. In addition to this the private activity bonds are not all that safe as they are used to fund private colleges as well as projects. The cash flow from these projects are there for one to see, but it is not guaranteed by the municipality in any way for sure.
How safe are municipal bonds can be gauged from the fact that the prime duty of the issuers of it should be to meet the financial obligations of it in the first place. They need to meet interest as well as principal payments in a timely manner for sure. To ascertain this one can go through the financial circulars as well as the official press releases of the company in question.
Another mechanism to evaluate the concept of how safe are municipal bonds is to avail the help of credit rating agencies. Most of the bonds are rated by the various rating agencies and typical example of one of them would be Moody;s rating agency. In addition to this a host of banks as well as financial institutions have their own rating machinery as well because they present a professional view .
So it is quiet clear that before purchasing municipal bonds one needs to understand the fact of how safe are municipal bonds. They are quiet suitable for investors who are seeking regular interest payments and that too in the higher income bracket for sure. In a way they work out to be additional tax saving options if they tend to be issued by one’s home state. Various thought process have to be adopted before purchasing bonds, that is the type of tax savings you are looking, the type of bonds as they require a small amount of investment than the other bonds.