Municipal bonds are loans state and local governments use to pay for everyday expenses and infrastructure projects that can take years to complete. Municipal bonds — also called “munis” — are attractive to some investors because states, counties, cities school districts and other government organizations are unlikely to default. From 1970 to 2016, 0.18% of municipal bonds defaulted, compared with 1.74% of corporate bonds that companies issued, according to the Municipal Securities Rulemaking Board, a non-governmental organization that regulates the market. Another reason investors buy municipal bonds: They typically don’t have to pay federal income tax on interest money they accrue.
The municipal bond market is huge and has grown exponentially in recent decades. There’s about $4 trillion worth of bonds held in the municipal market today, up from $1.2 trillion in 1996, according to data from SIFMA, a security industry trade association that tracks municipal bond data.
Despite a dip in municipal bond issuance around the start of the coronavirus recession, and defaults of some bonds issued by small municipalities — like Terre Haute, Indiana in April — year-to-date there’s been nearly $50 billion more in municipal bonds issued across the country, a 23.7% increase. Municipal bond issuances rebounded in April after the U.S. Federal Reserve said it would buy up to $500 billion worth of bonds from states, counties and cities, which have three