Bond Buyers

Municipal bonds, and municipal securities in general, may be bought by anyone. The purchasers of bonds fall into three main categories; each is essentially making same type of purchase, but doing it through different channels. See the three different types of buyers below:

Individual Investors

The individual investor that wishes to purchase municipal securities will make a purchase directly through their broker. This was traditionally done over the phone or in person at a meeting with a broker, but with the advent of the internet, purchasing municipal securities via online brokerage is only a click away.

Individual Investor’s Fund

This sort of buyer is purchasing bonds and/or municipal securities in a roundabout way. These buyers didn’t ask for specific securities to be purchased, rather the fund that they have established for themselves will pick its own. Trust funds, money market funds, and certain types of mutual funds fall into this category. An investment firm or personal financial advisor may help to set up one of these funds for the individual investor, and make purchases of municipal securities on behalf of the fund and the investor. These types of buyer’s are also known as “household proxies”.

Institutional Investors

Institutional investors are firms that buy municipal securities as an investment on their own and to hedge out whatever particular industry they may be in. Good examples of institutional investors that invest in bonds are property and casualty insurance companies and commercial banks. These two types of institutions usually have large sums of cash on hand due to the nature of their business; what is known as the “float” (a subject all on its own). Since the float is usually comprised of cash that isn’t actually their own (private bank accounts in commercial banks, for example), these institutions need to make sure they put it in a safe investment while maximizing their return. Municipal bonds offer them security and beneficial tax breaks.