The Financial Industry Regulatory Authority (FINRA) published an Investor Alert on municipal bonds. This provides a thorough background on municipal bonds and advice on investing.
There are certain risks in investing in municipal bonds. For example, the municipality issuing the municipal bonds can default, leading to the loss of some (if not all) interest and principal to the investor. This is called default risk. Municipal bonds can be insured against default by a bond insurer, yet even then the investor is still exposed to risk: the credit risk of the bond insurer itself. Thirdly, municipal bonds are subject to interest rate risks. Retail investors should also be aware of the extra costs of purchasing municipal bonds, such as fees and mark-ups and be sure that they are not excessive relative to the market.
SLCG has written several papers giving in-depth analyses on municipal bonds:
- Leverage municipal bond arbitrage in the context of fixed income hedge fund strategy
- Corporate and municipal bonds in the context of retail investments