Book Review: Investing In Municipal Bonds

by: David Merkel, CFA

In my life, I have been a mortgage bond manager, and a corporate bond manager. I have enough overall experience that I have played in most bond and loan categories, including municipal bonds. Municipal bonds are one place where the competition level is low, and additional knowledge can pay off. This is particularly true in an era where municipal bond insurance is less prevalent, and as such, credit analysis has more value.

This book gives you the basics on municipal bonds. The most basic idea is economic necessity. Who will be harmed if the municipality in question can't perform? If the answer is "few," that might not be a good municipal bond to buy, unless there are significant covenants requiring a municipality to raise taxes to pay for the debt service.

Municipal bonds are an unusual market because there are many issuers, purposes, and bond styles. The dominant non-taxable bonds are only bought by Americans, and sometimes only by those in a given state. Municipal bonds are also different because most of the bonds issued have long maturity dates. Municipalities want predictability in borrowing costs; they also match the borrowing term to the length of what is funded, which is typically long.

The book will take you through:

  • Bond types
  • Covenants
  • Types of bonds that are more risky
  • How bonds pay off
  • Taxation of bonds
  • The ugliness of trading municipal bonds
  • The challenge of analyzing municipal economies
  • Basic yield calculations
  • Portfolio management
  • Derivatives — though that was more of an issue in the past

I would highlight one big issue here. Most small municipal issues rarely trade. Assembling your own portfolio of municipal bonds is a tough proposition. Flexibility is required to assemble your own ladder of municipal bonds.


None. Good book.

Who would benefit from this book: If you are willing to put in the time to analyze what municipal bonds are worthy to be bought, this book will help you.

Full disclosure: The publisher sent me a copy of the book for free.