Why are Muni bonds appealing to some investors?

Municipal bonds, commonly referred to as muni bonds, are particularly appealing to investors primarily because they are often low-risk and usually tax-exempt. These bonds are issued by state and local governments to finance public projects, and the interest income generated from these bonds is typically exempt from federal income tax, and in many cases, state and local taxes as well.

This tax-exempt feature is significant as it allows investors to retain a higher percentage of their earnings compared to taxable investments, making them attractive to those in higher income tax brackets. Additionally, since they are issued by government entities, muni bonds are generally considered low-risk, which can provide peace of mind for conservative investors looking for stable returns without significant risk.

The other options do not accurately reflect the key features of municipal bonds. While some investors may value guaranteed returns, muni bonds do not guarantee returns in the same way fixed-income securities backed by the government do. High interest rates are not characteristic of muni bonds; typically, they offer lower yields compared to corporate bonds due to their tax advantages. Trading on the stock market does not apply to municipal bonds, as they are typically traded in the bond market. This context underscores why the emphasis on their low-risk nature and tax-exempt status is central to their