CHAPTER 10

Municipal Bonds

OVERVIEW

Most bond investors sooner or later consider the huge tax shelter available in the purchase of tax-free municipal bonds. Many investors who are in a high tax bracket decide to invest all of their money in high-quality tax-free municipal bonds to maximize their after-tax income. The bulk of our bond purchases for our clients and ourselves are municipal bonds, both tax-free and taxable. Because of the importance of municipal bonds, we have devoted two chapters to these bonds.

This chapter is an introduction to muni bonds. It describes the general features of muni bonds including their risks, ratings, security enhancements, and what happened to the bond insurers from 2007 to 2010. We discuss the background information ...

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