High grade municipal bonds are provided in order to create an income that is free from the federal income taxes. It is suitable for the investors who want their income exempt from the federal taxes. They are generally issued by the local or state government and produce maximum yields. Investors prefer to invest in these bonds since they offer a higher income.
The main objective of high grade municipal bonds is to generate the current income free from the federal income tax. They are popular among the investors that since they provide stability and their tax free status. Due to their tax free interest the municipalities can pay lower interest rates than the other issuers. There are four bond rating agencies that provide analysis of the assets and liabilities of the municipality. The rating agencies assess the bonds based on four criteria’s namely debt structure, economics, financial condition and management considerations.
The grading terminology differs between the rating agencies but high quality bonds are assigned ‘A’ grades and the mid tier bonds are assigned ‘B’ grades. Those bonds which are rated below ‘BB’ are considered to be speculative which are also called as high yield bonds while those bonds that are rated as ‘BBB’ are considered to be investment grade bonds.
Since municipal bonds are liquid it allows you to take out money at any given time. But in order to sell the bond you need to check the bond yield before the maturity date of the bond so that you can obtain the current yield rate.
High grade municipal bonds offer many advantages. It allows you to sell the bond before they have reached their maturity and get benefit out it. It lets you sell the bonds in the open market without having to wait for the bonds to get matured.
Investors can buy high grade municipal bonds individually or through an income fund. There are many types of income funds such as insured, state specific and national. These funds focus on the type of the bonds. The national fund prefers high grade municipal bond and state specific fund makes the choice of bond from a specific state.
High Grade municipal bonds require a minimum investment of about five grand and is affordable for those investors who want to obtain steady payments from their bond investment. High grade municipal bonds do not necessarily hold high yields.
The government does not charge any tax on high grade municipal bonds on obtaining the returns from the investments since you pay a certain amount of loan to the government. Investors with a long term time horizons are greatly benefited from the high grade municipal bonds. These bonds are approved by the voters.