The Handbook of Financial Instruments

Chapter 10 Municipal Securities

Frank J. Fabozzi, Ph.D., CFA

Adjunct Professor of Finance School of Management Yale University

Debt obligations are issued by state and local governments and by entities that they establish. Local government units include municipalities, counties, towns and townships, school districts, and special service system districts. Included in the category of municipalities are cities, villages, boroughs, and incorporated towns that received a special state charter. Counties are geographical subdivisions of states whose functions are law enforcement, judicial administration, and construction and maintenance of roads. As with counties, towns and townships are geographical subdivisions of states and perform similar functions as counties. A special-purpose service system district, or simply special district, is a political subdivision created to foster economic development or related services to a geographical area. Special districts provide public utility services (water, sewers, and drainage) and fire protection services. Public agencies or instrumentalities include authorities and commissions.

The number of municipal bond issuers is remarkable. One broker/ dealer’s estimate places the total at 60,055. Also, Bloomberg Financial Markets’ (Bloomberg) database contains 55,000 active issuers. Even more noteworthy is the number of different issues. Interactive Data, a company that provides pricing information for institutional investors, claims that it provides ...