Municipal Bonds
Chapters in this video
- 0:00 GO bonds: taxing power and voter approval
- 1:35 Revenue bonds: project backing and the rate covenant
- 3:15 IDRBs: conduit issuer and corporate credit risk
- 4:11 Short-term notes: TANs, RANs, and BANs
- 4:40 Insured municipal bonds: credit risk only
- 5:45 Tax exemption traps: interest vs. capital gains
- 6:53 Tax equivalent yield: the formula and both calculations
- 8:22 Rapid-fire exam recap
What this video covers
- The exact backing of general obligation (GO) bonds (ad valorem property taxes and full faith and credit) and why they require voter approval
- How revenue bonds differ: specific project revenues, no taxing power, no voter approval, and the critical role of the rate covenant
- Why revenue bonds carry higher yields than GO bonds from the same issuer, and what happens if the project fails to generate revenue
- Industrial development revenue bonds (IDRBs): conduit issuer structure, private corporation credit risk, and alternative minimum tax (AMT) exposure
- Insured municipal bonds: credit rating upgrade to AAA, lower yields, and the exam distinction that insurance covers credit risk only, not interest rate risk
- Tax treatment nuances: federal tax exemption, double-exempt and triple-exempt status, and why capital gains on municipal bonds remain fully taxable
- How to calculate tax equivalent yield (TEY) in both directions to compare municipal and taxable bonds for clients in different brackets
Read the full lesson, free
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