The Fundamentals of Municipal Bonds, Sixth Edition
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  • Wiley

More About This Title The Fundamentals of Municipal Bonds, Sixth Edition


The definitive new edition of the most trusted book on municipal bonds

As of the end of 1998, municipal bonds, issued by state or local governments to finance public works programs, such as the building of schools, streets, and electrical grids, totaled almost $1.5 trillion in outstanding debt, a number that has only increased over time. The market for these bonds is comprised of many types of professionals—investment bankers, underwriters, traders, analysts, attorneys, rating agencies, brokers, and regulators—who are paid interest and principal according to a fixed schedule. Intended for investment professionals interested in how US municipal bonds work, The Fundamentals of Municipal Bonds, Sixth Edition explains the bond contract and recent changes in this market, providing investors with the information and tools they need to make bonds reliable parts of their portfolios.

  • The market is very different from when the fifth edition was published more than ten years ago, and this revision reasserts Fundamentals of Municipal Bonds as the preeminent text in the field
  • Explores the basics of municipal securities, including the issuers, the primary market, and the secondary market
  • Key areas, such as investing in bonds, credit analysis, interest rates, and regulatory and disclosure requirements, are covered in detail
  • This revised edition includes appendixes, a glossary, and a list of financial products related to applying the fundamentals of municipal bonds
  • An official book of the Securities Industry and Financial Markets Association (SIFMA)

With today's financial market in recovery and still highly volatile, investors are looking for a safe and steady way to grow their money without having to invest in stocks. The bond market has always been a safe haven, although confusing new bonds and bond funds make it increasingly difficult for unfamiliar investors to decide on the most suitable fixed income investments.


The Securities Industry and Financial Markets Association (SIFMA) brings together the shared interests of hundreds of securities firms, banks, and asset managers. SIFMA's mission is to support a strong financial industry, investor opportunity, capital formation, job creation, and economic growth, while building trust and confidence in the financial markets. SIFMA, with offices in New York and Washington, DC, is the U.S. regional member of the Global Financial Markets Association (GFMA). For more information, visit


Preface ix

Writer’s Acknowledgments xi

CHAPTER 1 Overview of the Municipal Bond Market 1

Introduction 1

The Issuers 4

Municipal Bond Dealers 7

The Lawyers 10

Financial Advisors, Specialists, and Other Consultants 11

The Rating Agencies 12

Bond Brokers 13

The Credit Enhancers 13

The Trustees and Paying Agents 17

The Investors 17

Information and Technology 18

The Regulators 19

Other Participants 21

CHAPTER 2 The Basics of Municipal Securities 23

Description of Municipal Securities 23

Yield and Price 26

Types of Yields 28

Tax Exemption of Municipal Bonds 29

Types of Municipal Bonds 35

Short-Term Securities 36

Other Characteristics of Municipal Bonds 45

CHAPTER 3 The Issuers 55

Introduction 55

Authorities and Special Districts 56

The Theory of Municipal Debt: Pay-As-You-Use versus Pay-As-You-Go 57

The Uses of Municipal Debt 59

The Security for Municipal Bonds 61

The Financing Process 68

The Financing Documents 71

Structuring the Debt 81

State and Local Government Accounting 87

CHAPTER 4 The Primary Market 93

Issuance Trends in the Primary Market 93

The Basics of Underwriting 96

Negotiated Underwriting 101

Competitive Underwriting 105

Orders and Procedures 111

CHAPTER 5 The Secondary Market 117

Introduction 117

The Over-the-Counter Market 117

E-Commerce, Information, and Technology 119

Selling Municipal Bonds 121

The Basics of Municipal Bond Trading 123

Municipal Bond Trading 124

How a Trade Is Done 128

Municipal Futures 130

Providers of Data in the Municipal Market 131

Market Statistics and Indexes 132

MSRB Record-Keeping Rules 136

CHAPTER 6 Investing in Bonds 139

Introduction 139

The Basic Principles of Investing in Bonds 139

Measures of Yield and Return 143

Yield to Maturity and Price 145

Investment Objectives 147

Risk Factors 148

Investor Strategies 150

Taxation of Municipal Bonds 152

Other Investment Factors 161

Investor Categories 163

CHAPTER 7 Credit Analysis 173

Introduction 173

The Rating Agencies 175

The Rating Process 176

General Obligation Bonds 179

Revenue Bonds 197

Other Factors Affecting Credit 207

CHAPTER 8 Understanding Interest Rates 211

Introduction 211

Determinants of the Overall Level of Interest Rates 212

Term Structure of Interest Rates 216

Municipal Bond Rates 221

CHAPTER 9 Regulatory and Disclosure Requirements 225

Introduction 225

The Basis of Federal Tax Exemption 226

History of Federal Tax Legislation Affecting Municipal Securities 228

The Current Statutory Exemption 230

Application of Federal Securities Laws to Municipal Securities 233

The Municipal Securities Rulemaking Board 239

CHAPTER 10 Financial Products 247

Introduction 247

Interest Rate Swaps 247

Interest Rate Caps, Floors, and Collars 252

Other Swap Products 253

Managing the Asset Side 253

Credit Default Swaps 254

APPENDIX Municipal Securities Rulemaking Board Rule G-33 257

Glossary 265

Bibliography 283

Web Sites 283

Books and Publications 284

About the Writer 285

Index 287