A city's name on a bond tells you who borrowed, not who repays. The money may come from every taxpayer in town, from drivers on a toll bridge, from a private company or from a legislature that promised nothing. Your customer's risk follows that money.
Municipal securities are debts of states, cities, counties, school districts and public authorities. They are exempt from Securities and Exchange Commission (SEC) registration, so Congress created a separate board to protect investors who buy them through dealers. The Municipal Securities Rulemaking Board (MSRB) writes the rules dealers follow when they quote and sell them.
Denominations and interest. Municipal bonds typically come in $5,000 denominations. Some issuers set a higher minimum, most often $100,000. For issues after June 1, 2002, MSRB Rule G-15 bars customer trades below an issue's minimum denomination, apart from narrow liquidation exceptions. Most munis pay a fixed rate in semiannual payment periods. Others pay variable interest rates that reset on a schedule.
Common mistakes
- Treating a moral obligation as a guarantee. The legislature may cover a shortfall but is not legally required to. Only a double-barreled bond adds a binding GO backup.
- Using outdated ABLE figures. For 2026 the annual limit is $20,000, not the $19,000 gift exclusion. The disability must begin before age 46, not 26.
- Using the old K-12 cap. Starting in 2026, a 529 may pay up to $20,000 a year of K-12 costs, not $10,000, and not only tuition.
Bottom line
- GO bonds rest on the issuer's full faith, credit and taxing power, are usually approved by voters and are subject to debt limits; limited-tax GO bonds rely on taxes capped by law.
- Revenue bonds and IDBs pay only from project revenue or a company's lease payments; double-barreled bonds add a binding GO backup, while moral obligation bonds and COPs depend on a legislature that is not legally bound to pay.
- TANs, RANs and TRANs wait for taxes and revenues, BANs wait for a long-term bond sale, GANs wait for grants, and tax-exempt commercial paper matures within 270 days.
- Munis come in $5,000 denominations with semiannual interest; serial maturities are quoted on a basis and term bonds on a dollar price; delivery without bond counsel's legal opinion is good only if the trade was identified as ex-legal.
Exam shortcut
Find the payer before anything else. When a question describes a bond, ask who writes the check and whether anyone is legally forced to cover a shortfall. The answer is taxpayers (GO), users (revenue), a company (IDB) or a yearly budget vote (moral obligation, COP). For notes, match the name to the future money; only a BAN is repaid from a later long-term bond issue.
The full lesson (about 5,067 words, 34 min read) adds 2 worked examples, all 6 common mistakes, a self-check, free in the app.
Learning objectives
- C21
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