What is a municipal bond commonly referred to as?

A municipal bond is commonly referred to as a tax-exempt bond because the interest earned on these bonds is typically exempt from federal income tax, and in some cases, state and local taxes as well. This feature makes municipal bonds an attractive investment for individuals in higher tax brackets, as the tax exemption can provide a higher after-tax return compared to taxable investments.

Tax-exempt status is a key characteristic of most municipal bonds, which are issued by states, cities, or other governmental entities to fund public projects like schools, highways, and hospitals. Investors often consider this benefit when deciding to invest in municipal bonds, as it can enhance the overall yield compared to other types of bonds, whose interest is fully taxable.

In contrast, green bonds are specifically tied to environmentally friendly projects and are not a category that includes all municipal bonds. Corporate bonds are issued by companies and do not provide the same tax advantages. Investment-grade bonds refer to bonds rated above a certain threshold by credit rating agencies, indicating a low risk of default, but this classification applies to various kinds of bonds and does not specifically denote the tax status associated with municipal bonds.