A bond that is issued by a state or local government to finance specific requirements (public capital needs) or budget deficits, etc. Such bonds are exempt from federal taxation, and possibly from taxation at other levels (state and local taxes). These bonds are typically used to finance a wide array of projects such as public schools, streets and roads, hospitals, housing for low-income earners, etc.

A municipal bond is a promise by a state or local government unit (the issuers) to pay the lenders (investors) an amount of interest (or a series of interest payments) and to repay the amount of debt (principal), according to a specific schedule, over a maturity period ranging from 1-40 years.

Municipal securities are also referred to as tax-exempt bonds, because the interest paid to the holders (investors) is not subject to taxes (federal income taxes, state/ local taxation).

A municipal bond is also known as a muni.