Bonds issued by municipalties, such as states, cities and counties where the money raised to pay off the bonds comes from a non-tax revenue source, are called revenue bonds.
Municipal issuers could include transportation entities and others. Revenue bonds are rated and yield based on their own merit.
Investing in these municipal securities is normally based on the location of the issue, the tax bracket of the investor (for greater tax free yield), maturity and rating.
Types of Revenue Issues
Transportation - These bonds are issued backed by tolls, fees and other transportation collections.
Utility - These revenue bonds are secured by the income of a public utility.
Industrial - These municipal issues are backed by a corporation's payments back to the municipality.
Revenue bonds should be invested based on the geographical area of the investor. Most states offer municipal buyers triple tax free treatment (no state, federal or local tax), if the investment is issued in the home state of the buyer. This will increase the overall tax free yield of the municipal bond investor.
Not every brokerage firm offers revenue bonds. The best selection will normally come from municipal bond brokers that hold inventory for these bonds. These securities are normally traded over the counter OTC between broker to broker. There is usually a mark up for these bonds, not a commission.
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