Municipal Junk Bond

Junk municipal bonds, sometimes referred to as high-yield municipal bonds, are debt... Junk municipal bonds, sometimes referred to as high-yield municipal bonds, are debt securities issued by state and local governments carrying the highest credit risk that a bond issuer may default, as determined by rating agencies Moody’s and Standard and Poor’s (S&P). These securities are typically rated below Baa3 by Moody's, or below BBB by S&P. Junk municipal bonds are only appropriate for investors with a high risk tolerance, and who are willing to risk some or all of their investment in exchange for higher potential interest payments. Depending on numerous issuer-specific and economic factors, such as overall risk appetite in financial markets, the spread between investment-grade and junk municipal bonds can widen or narrow. A wide spread indicates that investors are demanding a hefty premium to buy junk bonds, whereas a narrow premium suggests that the market is less concerned about credit risk that the bond issuer may default. Like any other municipal bonds, the interest payments from these securities are typically exempt from federal taxation. Interest payments can be also tax-free at the state level if investors are residents of the state issuing the bonds. Last Updated: 12/26/2024 View more View less

Junk municipal bonds, sometimes referred to as high-yield municipal bonds, are debt securities issued by state and local governments carrying the highest credit risk that a bond issuer may default, as determined by... Junk municipal bonds, sometimes referred to as high-yield municipal bonds, are debt securities issued by state and local governments carrying the highest credit risk that a bond issuer may default, as determined by rating agencies Moody’s and Standard and Poor’s (S&P). These securities are typically rated below Baa3 by Moody's, or below BBB by S&P. Junk municipal bonds are only appropriate for investors with a high risk tolerance, and who are willing to risk some or all of their investment in exchange for higher potential interest payments. Depending on numerous issuer-specific and economic factors, such as overall risk appetite in financial markets, the spread between investment-grade and junk municipal bonds can widen or narrow. A wide spread indicates that investors are demanding a hefty premium to buy junk bonds, whereas a narrow premium suggests that the market is less concerned about credit risk that the bond issuer may default. Like any other municipal bonds, the interest payments from these securities are typically exempt from federal taxation. Interest payments can be also tax-free at the state level if investors are residents of the state issuing the bonds. Last Updated: 12/26/2024 View more View less