Selling Municipal Bonds

Municipal bonds are first issued by a government entity and purchased by an underwriting firm, such as a large commercial bank. This firm is making the initial purchase and covering the entire cost of the government entity’s issue. At this point, the the issuer is the borrower and the underwriting firm the lender. The firm then puts these bonds up for sale on the Primary Market, where they are bought up by both individual and institutional investors. Assuming all the bonds are eventually sold, the underwriting firm has now offloaded their credit to other investors. Now, it is the investors who have bought up all the municipal debt for a particular issue. It is up the issuer to pay back these investors and relieve their debt completely, including interest, by the time the bond comes to full maturity.

Once the individual and institutional investors purchase the municipal bonds, there is another market for them. The Secondary Market is where they can buy, sell, and trade bonds that have not come to full maturity. This offers liquidity and a safety net to investors wary of tying up their money in a 10, 20, or even 30-year bond.