While there are many types of municipal bonds such as GO bonds and revenue bonds, these bonds are generally issued as either current interest bonds or capital appreciation bonds. A common misconception is that current interest bonds pay both regular interest and regular principal. This is not true. Multiple current interest bond maturities though could be structured such that principal is amortized more regularly.
Read MoreA common misconception of CABs is that it’s a balloon payment whereas current interest bonds are not. This is not always true as a current interest bond could also have one large principal payment due out in the future. Similar to current interest bonds, CAB maturities could be structured such that principal is amortized more regularly.
Read MoreWhen investors loan bond funds to a municipality, they are expecting a rate of return on their investment. Unlike a mortgage where one bank loans the entire amount to a borrower, in a municipal bond financing there are typically multiple investors who loan funds based on their desired maturity length and other factors.
Read MoreA traditional feature of many municipal bonds is their tax-exempt status. For investors who purchase certain municipal bonds, the interest received can be exempt from state and/or federal income tax.Tax exemption is an important aspect of municipal bonds that benefits municipalities, investors and the public.
Read MoreCalifornia K-14 districts can elect to have their bonds approved under proposition 39 or Proposition 46. Selecting Proposition 39 or Proposition 46 for a bond election could be a political, facility-related, financial, or timing decision, among others.
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Chet Wang is a registered municipal advisor with an exclusive focus on California education municipal bonds.
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