Security of Municipal Bonds

Advantages for EB-5 Investment

One of the main advantages concerning municipal bonds investments is the safety surrounding the investment. There are also several built-in advantages of municipal bond investments which include:

 

  • Municipal finance is literally the financial backbone of the American government
  • States are sovereign entities that can tax as much as they deem necessary to pay for the cost of a municipal bond
  • Most municipal bond issuers face limited or no competition
  • Local governments as well as states provide services such as police, road repair, and education that are absolutely required by our society
  • For local governments, this means that if they face economic difficulties, higher levels of government (county, state and federal) have  large incentives to provide assistance
  • Municipal bond issuers have the power to enforce revenue collection. If a user does not pay a water bill, the water can be shut off, providing a powerful incentive to pay.
  • Unlike other types of issuers such as corporations, almost all municipal issuers will continue to exist in perpetuity. If a municipality ever had a debt repayment problem, the issuer would continue to exist as a vibrant, cash flowing entity during and after the problem. Cities, counties, and states cannot just disappear.

After U.S. Treasury bonds and instruments guaranteed by the U.S. government (including guaranteed CDs and bank obligations), it could be argued that municipal bonds are the next safest category of investment available.

Compared to corporate credit and associated indicators, municipal bonds are safer, more conservative investments. However, some jurisdictions may be in better financial shape than others. Immigrant investors should also know that there might be fewer risks during economic upswings when governments usually collect more revenues from taxes.